Mastering Accounts Receivable Management: A Comprehensive Guide for Juris Doctor Students

Question 1

The primary objective of accounts receivable management is to:

Accepted Answer

Maximize collections and cash flow

Answer

Minimize bad debts and losses

Answer

Enhance customer satisfaction

Answer

Reduce administrative expenses

Question 2

Which of the following is not a crucial metric used to evaluate accounts receivable performance?

Accepted Answer

Profit Margin

Answer

Days Sales Outstanding (DSO)

Answer

Current Ratio

Answer

Average Collection Period

Question 3

Which credit risk assessment method analyzes historical financial data?

Accepted Answer

Financial Ratio Analysis

Answer

Credit Scoring

Answer

Payment History Review

Answer

Credit Bureau Report

Question 4

Which of the following is a commonly used accounts receivable aging method?

Accepted Answer

Current/Non-Current

Answer

FIFO

Answer

LIFO

Answer

Weighted Average

Question 5

Which of the following factors should not be considered when setting credit limits for customers?

Accepted Answer

Customer's personal credit history

Answer

Customer's financial stability

Answer

Prevailing industry practices

Answer

Company's overall risk tolerance

Question 6

Which is the primary objective of accounts receivable management?

Accepted Answer

Optimize cash flow and reduce the risk of bad debts

Answer

Maximize sales revenue

Answer

Minimize the cost of collecting accounts receivable

Answer

Enhance customer relationships

Question 7

How does a strict credit risk management policy generally impact a company's accounts receivable turnover ratio?

Accepted Answer

Increases the ratio by reducing uncollectible accounts.

Answer

Decreases the ratio by slowing down collections.

Answer

Has no significant effect on the ratio.

Question 8

Which metric is commonly used to assess the efficiency of accounts receivable collection?

Accepted Answer

Days Sales Outstanding (DSO)

Answer

Current Ratio

Answer

Quick Ratio

Answer

Debt-to-Equity Ratio

Question 9

Financial Ratio Analysis involves evaluating a customer's:

Accepted Answer

Financial statements and payment history

Answer

Credit score and references

Answer

Trade credit insurance and industry trends

Answer

Legal compliance and business operations

Question 10

For customers facing financial challenges but open to payment arrangements, which collection strategy is most suitable?

Accepted Answer

Negotiate a payment plan

Answer

Initiate legal proceedings immediately

Answer

Demand immediate full payment

Answer

Assign the account to a collection agency

Question 11

Which of the following is NOT a benefit of effective accounts receivable management?

Accepted Answer

Reduced inventory levels

Answer

Reduced bad debt expense

Answer

Improved cash flow

Answer

Enhanced customer relationships

Question 12

What is the primary objective of a credit policy?

Accepted Answer

To minimize bad debt losses

Answer

To increase market share

Answer

To ensure timely payments

Answer

To evaluate customer profitability

Question 13

Which of the following collection strategies is considered the most assertive?

Accepted Answer

Lawsuits

Answer

Personal visits

Answer

Telephone calls

Answer

Demand letters

Question 14

What is the purpose of a lockbox system in accounts receivable management?

Accepted Answer

To expedite receipt and processing of payments

Answer

To reduce bank fees

Answer

To improve customer satisfaction

Answer

To enhance security of cash

Question 15

Which collection strategy in accounts receivable management involves negotiating flexible payment arrangements with customers?

Accepted Answer

Negotiating payment plans

Answer

Invoice discounting

Answer

Legal action

Answer

Factoring

Question 16

Which metric serves as a key indicator of accounts receivable performance, reflecting the average time customers take to settle their accounts?

Accepted Answer

Days Sales Outstanding (DSO)

Answer

Accounts Receivable Turnover Ratio

Answer

Bad Debt Expense Ratio

Answer

Current Ratio

Question 17

Which of the following is NOT a key benefit of effective accounts receivable management?

Accepted Answer

Lower inventory levels

Answer

Enhanced cash flow

Answer

Reduced bad debt expense

Answer

Boosted customer loyalty

Question 18

What is the main purpose of accounts receivable financing?

Accepted Answer

To generate immediate cash flow

Answer

To minimize bad debt losses

Answer

To boost sales revenue

Answer

To strengthen customer relationships

Question 19

What is the primary responsibility of a credit manager in accounts receivable management?

Accepted Answer

Establishing credit limits and approving credit applications

Answer

Monitoring customer accounts and collecting overdue payments

Answer

Preparing financial statements and analyzing financial data

Answer

Managing inventory levels and coordinating logistics

Question 20

Describe the distinction between a credit hold and a collection hold.

Accepted Answer

A credit hold prevents sales to a customer, while a collection hold prevents collecting payments from a customer

Answer

A credit hold is temporary, while a collection hold is imposed indefinitely

Answer

A credit hold is initiated by the customer, while a collection hold is imposed by the company

Answer

There is no difference between a credit hold and a collection hold

Question 21

What is the primary objective of a credit risk management policy?

Accepted Answer

To optimize sales volume while minimizing the risk of non-payment

Answer

To eliminate the possibility of bad debts

Answer

To ensure that credit is extended to all potential customers

Answer

To minimize the administrative costs associated with credit management

Question 22

Which of the following is NOT a widely used method for collecting delinquent accounts receivable?

Accepted Answer

Automatic withdrawal from customer's bank account

Answer

Negotiated payment arrangements

Answer

Legal action

Answer

Referral to a collection agency

Question 23

What is the primary purpose of the allowance for doubtful accounts?

Accepted Answer

To estimate the potential amount of uncollectible accounts receivable

Answer

To record the actual amount of bad debts incurred

Answer

To reduce the revenue generated from credit sales

Answer

To serve as a buffer against unexpected financial losses

Question 24

Which of the following is a key metric for measuring the efficiency of accounts receivable management?

Accepted Answer

Days sales outstanding (DSO)

Answer

Inventory turnover ratio

Answer

Debt-to-asset ratio

Answer

Gross profit margin

Question 25

Which of the following is NOT a potential risk associated with accounts receivable management?

Accepted Answer

Increased customer loyalty

Answer

Bad debts

Answer

Fraud

Answer

Overstocking of inventory

Question 26

Summarize the ethical and legal responsibilities of professionals managing accounts receivable.

Accepted Answer

Act in the company's best interests while following ethical and legal guidelines.

Accepted Answer

Avoid situations that could compromise objectivity or create conflicts of interest.

Accepted Answer

Disclose all relevant information to customers, including payment terms and potential penalties.

Answer

Pursue collection of all debts aggressively, regardless of the consequences.

Question 27

Which collection strategy involves offering incentives for early payments?

Accepted Answer

Discounts for early payment

Answer

Late payment penalties

Answer

Collection agencies

Answer

Legal action

Question 28

What is the main purpose of establishing a credit policy?

Accepted Answer

To set clear guidelines for extending credit to customers.

Answer

To manage cash flow effectively.

Answer

To reduce accounts receivable turnover.

Answer

To improve customer loyalty.

Question 29

Which of the following is NOT a factor to consider when evaluating a customer's creditworthiness?

Accepted Answer

Personal references

Answer

Financial statements

Answer

Payment history

Answer

Industry outlook

Question 30

What is the process of transferring accounts receivable to a third-party for immediate cash at a discounted rate called?

Accepted Answer

Factoring

Answer

Assignment

Answer

Securitization

Answer

Hedging

Question 31

What is the primary function of a lockbox system?

Accepted Answer

To centralize and expedite the collection of customer payments

Answer

To reduce mailing costs

Answer

To enhance data security

Answer

To improve customer relationships

Question 32

Which of the following is **not** a benefit of effective accounts receivable management?

Accepted Answer

Accelerated inventory turnover

Answer

Enhanced cash flow

Answer

Reduced bad debt expense

Answer

Improved customer retention

Question 33

Which of the following is **not** a factor to consider when establishing credit limits?

Accepted Answer

Available inventory

Answer

Customer's credit history

Answer

Industry standards

Answer

Company's risk appetite

Question 34

What is the impact of a credit sale on a company's financial statements?

Accepted Answer

Increases accounts receivable and revenue

Answer

Increases accounts payable and expenses

Answer

Decreases inventory and cash

Answer

Decreases accounts receivable and revenue

Question 35

In the context of accounts receivable management, which option is NOT a direct benefit?

Accepted Answer

Improved supply chain efficiency

Answer

Enhanced cash flow

Answer

Reduced bad debt expenses

Answer

Increased customer satisfaction

Question 36

When assessing a high-risk customer with promising growth potential, which credit limit approach is appropriate?

Accepted Answer

Moderate limit with stringent credit terms and close monitoring

Answer

Conservative limit to minimize potential losses

Answer

Generous limit to maximize their revenue generation

Answer

Zero limit to eliminate any risk exposure

Question 37

For a customer experiencing financial difficulties, which collection strategy aligns best with their situation?

Accepted Answer

Negotiated payment plan that considers their financial constraints

Answer

Aggressive debt collection practices

Answer

Immediate legal action to recover the debt

Answer

Write-off of the receivable as uncollectible

Question 38

Which of the following is a benefit of effective accounts receivable management?

Accepted Answer

Improved cash flow

Answer

Reduced inventory waste

Answer

Increased debt

Question 39

When evaluating a customer's creditworthiness, which of the following factors should NOT be considered?

Accepted Answer

Social media presence

Answer

References

Answer

Payment history

Answer

Financial statements

Question 40

Which collection strategy involves offering incentives for early payment?

Accepted Answer

Early payment discounts

Answer

Collection agency

Answer

Legal collection

Answer

Aggressive collection

Question 41

What is the primary purpose of an aging report?

Accepted Answer

To identify overdue accounts and assess credit risk

Answer

To track sales trends

Answer

To calculate inventory turnover

Question 42

Which of the following is a common metric used to measure accounts receivable performance?

Accepted Answer

Days Sales Outstanding (DSO)

Answer

Inventory turnover ratio

Answer

Return on assets

Answer

Current ratio

Question 43

What is the primary objective of a credit policy?

Accepted Answer

To establish guidelines for extending credit to customers

Answer

To maximize sales

Answer

To minimize bad debt

Question 44

Which method of accounting for bad debts involves writing off specific uncollectible accounts?

Accepted Answer

Direct write-off method

Answer

Reserve method

Answer

Percentage of sales method

Answer

Allowance method

Question 45

Which department is responsible for managing the collection of payments from customers?

Accepted Answer

Accounts receivable department

Answer

Finance department

Answer

Payroll department

Question 46

**Which of the following is a primary objective of effective accounts receivable management?**

Accepted Answer

**To optimize cash flow by efficiently collecting outstanding receivables**

Answer

To limit the volume of credit sales

Answer

To increase expenses related to the sale of goods

Question 47

**What is the process of evaluating and categorizing customers based on their creditworthiness known as?**

Accepted Answer

**Credit risk assessment**

Answer

Customer analysis

Answer

Ageing analysis

Answer

Cash flow projection

Question 48

**Which of the following is NOT a potential benefit of sound accounts receivable management?**

Accepted Answer

**Reduced likelihood of insolvency**

Answer

Lower borrowing costs

Answer

Enhanced customer loyalty

Answer

Improved cash flow

Question 49

**What is the main purpose of an ageing schedule?**

Accepted Answer

**To classify accounts receivable based on the duration they have been outstanding**

Answer

To identify customers with a high risk of default

Answer

To calculate the total amount of accounts receivable

Question 50

**Which of the following is a common method used for collecting past-due accounts receivable?**

Accepted Answer

**Telephone follow-up**

Answer

Bankruptcy proceedings (This is not a collection method)

Answer

Legal action (This is not a common initial collection method)

Question 51

**What is the financial metric used to measure the average time it takes for customers to pay their invoices?**

Accepted Answer

**Days sales outstanding (DSO)**

Answer

Average collection period

Answer

Receivables turnover ratio

Answer

Credit period

Question 52

**Which of the following factors is typically NOT considered when establishing a company's credit policy?**

Accepted Answer

**The company's cost of equity**

Answer

The company's customer base

Answer

The company's risk tolerance

Answer

The company's industry

Question 53

**What is a potential drawback of implementing excessively stringent credit terms?**

Accepted Answer

**Loss of sales to competitors offering more favorable terms**

Answer

Reduced cash flow

Answer

Increased collection costs

Answer

Improved customer relationships

Question 54

**Which of the following is considered an ethical concern in accounts receivable management?**

Accepted Answer

**Harassing customers over overdue payments**

Answer

Denying credit to all customers who apply

Answer

Offering discounts for early payment

Question 55

**What is the accounting purpose of a bad debt expense?**

Accepted Answer

**To recognize the estimated amount of uncollectible accounts receivable**

Answer

To increase the company's taxable income

Answer

To improve the company's cash flow