1.

It is the process administering sales credit, enforcing credit and collection policies, and
maintaining an appropriate level of accounts receivable.

Receivable turnover

Receivable management

Working capital management

None of the above

2. It measures the rate of cash inflow from the collection of receivables.

Aging of receivables

Accounts receivable turnover

Average accounts receivable

Average collection period

3. It indicates the number of times an average amount of receivables is collected during the period
and the efficiency of collection.

Average collection period

Aging of receivables

Average accounts receivable

Accounts receivable turnover

4. It is a deduction in the invoice price of the merchandise

None of the above

Credit term

Trade discount

Cash discount
5. It is a deduction in the purchased price to serve as an incentive for prompt payment.

Credit term

Cash discount

None of the above

Trade discount

6. Assuming that net credit sales is constant, what determines an increase in average collection
period?

None of the above

A decrease in accounts receivable turnover

An increase in accounts receivable

A decrease in accounts receivable

7. This is the effect on working capital and current ratio if the company issued a promissory note in
exchange for its accounts receivable?

Working capital, no effect; current ratio, no effect

Working capital, decrease; current ratio, no effect

Working capital, increase; current ratio, increase

Working capital, decrease; current ratio, decrease

8. This is the effect of an increased accounts receivable on the current ratio and net working
capital.

Current ratio, increase; Net working capital, no effect

Current ratio, no effect; Net working capital, no effect

Current ratio, increase; Net working capital, increase

Current ratio, no effect; Net working capital, increase

9. Which of the following items is not included in determining the desired level of accounts
receivable?

None of the above.

Desired number of days of accounts receivable

Number of days in a year

Net sales

10. This is likely to happen when the company decides to increase its discount rate.

Collection, faster; Receivable turnover, higher; Collection period, shorter

Collection, faster; Receivable turnover, higher; Collection period, longer

Collection, slower; Receivable turnover, higher; Collection period, longer

Collection, slower; Receivable turnover, higher; Collection period, shorter

11. When the company decides to decrease its discount rate?

I. The collection will be slower

II. The receivable turnover will be slower

III. The collection period will be shorter

I is false

III is true

I and II are true

I and II are false

12. This is likely to happen when the company decides to extend its credit term.

Sales, higher; Receivable turnover, lower; Collection period, shorter

Sales, lower; Receivable turnover, higher; Collection period, longer

Sales, higher; Receivable turnover, lower; Collection period, longer

Sales, lower; Receivable turnover, higher; Collection period, longer

13. What may happen when the company decides to reduce its credit term?

I. Sales higher

II. Receivable turnover is higher

III. Collection period is longer

II is false

all are true

I and III are false.

I and II are true

14. Which of the following is likely to happen when the company decides to reduce its credit
period?

Sales, higher; Receivable turnover, increase; Collection period, longer

Sales, higher; Receivable turnover, decrease; Collection period, shorter

Sales, lower; Receivable turnover, increase; Collection period, shorter

Sales, lower; Receivable turnover, decrease; Collection period, longer.

15. What may be the effect if the company decides to increase its credit period?

1 sales will be higher

11 Receivable turnover is lower

111 Collection period is shorter.

1 and 11 are true

11 and 111 are false.

1 is false
1, 11 and 111 are true

16. Analyzing the days sales outstanding and the aging schedule are two common methods for
monitoring receivables, However, they can provide erroneous signals to credit managers when
_____________.

Customers’ payment patterns are changing

Sales fluctuate seasonally

Some customers take the discount and other do not

Sales are relatively constant, either seasonally or cyclically.

17. The firm’s receivables conversion period (measured in days) is equal to its accounts receivable
divided by its ___________.

Annual credit sales

None of the above.

Annual credit sales/360

Annual sales/360

18. When factoring accounts receivable, the factor is the ___________.

Method of determining how much money is lent to the firm.

Negotiated accounts receivable account.

Financial institution that buys the accounts receivable

Percent deduction in payment to the firm

19. It is the average length of time required to convert a firm’s receivables into cash.

Cash conversion cycle

Payables deferred period

Days sales outstanding

Receivables collection period

20. Which of the following statement is true?

If a firm sells on terms of 2/10, net/30 and its DSO is 30-days, then the firm probably has some past due
accounts.

If a firm that sells on terms of net/30 changes its policy to 2/10, net/30, and if no change in sales
volume occurs, then the firm’s DSO will probably increase.

If a firm sells on terms of net/60 and its sales are highly seasonal, with a sharp peak in December, then
its DSO as it typically calculated ( with sales per day = sales for past 12 months/365) would probably be
lower in January than in July.

Other things held constant, the higher a firm’s days sales outstanding (DSO), the better its credit
department.

21. A Company’s accounts receivable total Php25,000 and the turnover rate is 15 times in one year.
A turnover rate of 10 times in one year is desired to increase by 20%. How much must be the increase or
decrease in the accounts receivable?

Php25,000 increase

Answer not given

Php45,000 decrease

PHp45,000 increase

22. A firm’s sales amount to Php1,200,000. Sales terms are being revised from n/60 to n/45 and
sales are expected to decrease by 15%. How much is the increase (or decrease) in receivables as a result
of this change?

Php50,000

Php(72,500)

Answer not given.

Php(52,500)
23. The following bits of information are available from the financial records of Camil’s Corporation
for 2019.

Sales, Php750,000

Net credit sales, 66.67%

Net cash sales, 33.33%

Accounts receivable, Jan 1, 2019, Php75,000

Accounts receivable, Dec 31, 2019, Php50,000

What was the accounts receivable turnover in 2019?

15x

10x

12x

Answer not given.

24. To improve the credit and collection policies of Pau Company, the following data for 2019 were
gathered for study:

Accounts receivable, Jan 1, Php112,000

Accounts receivable, Dec 31, Php140,000

Bad debt expense, Php 6,300

Allowance for uncollectible accounts, Jan 1, Php10,500

Allowance for uncollectible accounts, Dec 31, Php7,000

Sales (all sales were made on credit), Php630,000

How much was the total cash collected from customers during 2019?

Php598,500

Php592,200

Answer not given.

Php599,200
25. o improve the credit and collection policies of Pau Company, the following data for 2019 were
gathered for study:

Accounts receivable, Jan 1 , Php112,000

Accounts receivable, Dec 31, Php140,000

Bad debt expense, Php 6,300

Allowance for uncollectible accounts, Jan 1, Php10,500

Allowance for uncollectible accounts, Dec 31, Php7,000

Sales (all sales were made on credit), Php630,000

What was the accounts receivable turnover?

4.70x

Answer not given.

5.37x

5.00x

26. Pau Company has an average payment period of 30 days, an average age of inventory of 20
days, and a cash conversion cycle is 30 days. What is Pau Company’s average collection period?

80 days

20 days

40 days

Answer not given

27. For the company of Ms. G, the average age of accounts receivable is 30 days, the average age of
accounts payable is 50 days, and the average age of inventory is 40 days. If Ms. G’s annual sales are
Php900,000, what is the firm’s average accounts receivable balance? Assume a 360-day year.

Php62,500

Php100,000

Php125,000

Php75,000

28. Cut Works expects sales of Php20 million this year under its current credit policy. The present
terms are net/30, the days sales outstanding is 60 days, and the bad debt loss percentage is 5%. Since
Cut Works wants to improve its probability, the treasurer has proposed that the credit period be
shortened to 15 days. This change will reduce expected sales by Php1,500,000, but will also shorten the
DSO on the remaining sales to 30 days. Expected bad debts losses on the remaining, sales will fall to 3%.
The variable cost percentage is 60%, and the cost of capital is 15%. What is the increase or decrease in
bad debts losses if the change is made?

Pgp445,000 decrease

Php445,000 increase

Php555,000 increase

Php555,000 decrease

29. Data on Shick Inc. for 2019 are shown below, along with the days sales outstanding of the
benchmark firms. The firm’s new CFO believes that the company can reduce its receivables enough to
reduce its DSO to the benchmark’s average. If Schick Inc. decides to do it, by how much will the
receivables increase or decrease? Assume a 360-day year,

Sales, Php120,000

Accounts receivable, Php15,000

Day sales outstanding (DSO), 60 days

Benchmark’s days sales outstanding (DSO), 30 days

Php6,000

Php (6,000)
Php10,000

Php(10,000)

30. Pua Company buys on terms of 2/10, net/30. It does not take discounts, and it typically pays 60
days after the invoice date. Net purchases amount to Php500,000 per year. What is the nominal annual
percentage cost of its non-free trade credit based on a 360-day year?

36.00%

24.00%

24.38%

36.73%