#1
Which of the following is a key objective of receivables management?
Minimizing bad debts
ExplanationMinimizing the amount of uncollectible debts owed to the company.
#2
What is the purpose of a credit policy in receivables management?
To set payment terms for customers
ExplanationIt establishes guidelines for extending credit to customers, including terms and conditions for repayment.
#3
What is the primary purpose of a collections policy in receivables management?
To minimize bad debts
ExplanationIt outlines procedures for collecting outstanding debts and reducing the risk of non-payment.
#4
What does Days Sales Outstanding (DSO) measure?
Efficiency of accounts receivable
ExplanationIt measures how quickly a company collects payment from its customers.
#5
Which of the following is NOT a method to accelerate cash receipts?
Outsourcing
ExplanationOutsourcing involves delegating tasks to external parties and does not directly accelerate cash receipts.
#6
What is the aging schedule in receivables management used for?
To classify accounts receivable by their age
ExplanationIt categorizes outstanding receivables based on how long they've been outstanding.
#7
Which of the following is a disadvantage of factoring as a method of receivables management?
High cost
ExplanationFactoring can incur significant fees and interest costs.
#8
Which financial ratio helps assess a company's ability to pay its short-term obligations?
Current ratio
ExplanationIt compares a company's current assets to its current liabilities to determine its short-term liquidity.
#9
Which of the following is a characteristic of an aging schedule in receivables management?
It classifies accounts receivable by their age.
ExplanationAn aging schedule categorizes outstanding receivables based on their age, helping identify overdue accounts.
#10
Which of the following is NOT a component of an effective credit policy in receivables management?
Customer satisfaction surveys.
ExplanationWhile important, customer satisfaction surveys are not directly related to establishing credit policies for customers.
#11
What is the purpose of the aging schedule in receivables management?
To classify accounts receivable by their age.
ExplanationIt helps identify overdue accounts and assess the risk of non-payment based on the age of outstanding receivables.
#12
Which of the following factors affects the cost of carrying accounts receivable?
Interest rates.
ExplanationHigher interest rates increase the cost associated with maintaining outstanding accounts receivable.
#13
Which of the following is a characteristic of an effective collections policy?
Establishing clear guidelines for overdue accounts.
ExplanationAn effective collections policy outlines specific procedures for following up on overdue accounts, improving the chances of successful debt recovery.
#14
What does the accounts receivable turnover ratio measure?
The efficiency of accounts receivable collections.
ExplanationIt indicates how quickly a company collects payments from its customers relative to its outstanding receivables.
#15
Which of the following is a method used to accelerate cash receipts in receivables management?
Outsourcing collection efforts
ExplanationBy delegating collection efforts to specialized agencies or companies, businesses can expedite the receipt of cash from outstanding debts.
#16
Which of the following is NOT a benefit of effective receivables management?
Decreased liquidity
ExplanationEffective receivables management typically results in improved liquidity, not decreased liquidity.
#17
Which financial ratio helps assess a company's ability to meet short-term obligations?
Current ratio
ExplanationThe current ratio compares a company's current assets to its current liabilities, indicating its ability to cover short-term debts.
#18
What is the purpose of credit scoring in receivables management?
To assess the creditworthiness of customers
ExplanationIt helps evaluate the likelihood that customers will repay their debts on time.
#19
What is the formula to calculate the Days Sales Outstanding (DSO)?
Accounts receivable / Net sales * 365
ExplanationIt calculates the average number of days it takes for a company to collect payment from its customers.
#20
What is the primary objective of credit analysis in receivables management?
To assess the creditworthiness of customers.
ExplanationCredit analysis evaluates the risk associated with extending credit to customers based on their financial history and ability to repay debts.
#21
Which of the following is a disadvantage of outsourcing collections in receivables management?
Decreased flexibility in handling customer relationships.
ExplanationOutsourcing collections may lead to a loss of control over customer interactions and relationship management.
#22
What is the formula to calculate the accounts receivable turnover ratio?
Net sales / Average accounts receivable.
ExplanationIt measures how efficiently a company collects payments from customers during a specific period.
#23
What is the primary goal of credit scoring in receivables management?
To assess the creditworthiness of customers.
ExplanationCredit scoring helps predict the likelihood of customers defaulting on payments based on various factors.
#24
What is the primary purpose of credit analysis in receivables management?
To assess the creditworthiness of customers
ExplanationCredit analysis evaluates the financial risk associated with extending credit to customers, helping minimize the likelihood of non-payment.