Accounting Knowledge practice questions

Receivables, payables & cash application

8 practice questions on receivables, payables & cash application, each with the answer and why it is right. From Questiva Learning' QuickBooks® Online skills test.

1. A negative customer balance on the A/R Aging Summary means the customer:

   1. Owes money that isn't due yet.
   2. Had an invoice written off as bad debt.
   3. Had an unpaid invoice deleted.
   4. Has a credit on their account.

   Answer: D) Has a credit on their account.. They have paid or been credited more than they were billed. Look for an overpayment, or a payment or credit memo that was never applied.

2. If you record a customer's payment as a new sale instead of applying it to their invoice:

   1. Cash is overstated.
   2. It doesn't matter, since cash and income go up either way.
   3. Accounts Receivable is understated.
   4. The income is counted twice in accrual-based reports.

   Answer: D) The income is counted twice in accrual-based reports.. The invoice already recorded the income, so the sale counts it again. The invoice also stays open, so the customer still looks like they owe.

3. A customer returns goods before paying the invoice. The credit memo is recorded as:

   1. Debit Sales Returns, credit Accounts Receivable.
   2. Debit Accounts Receivable, credit Sales Returns.
   3. Debit Cash, credit Accounts Receivable.
   4. No entry until they pay.

   Answer: A) Debit Sales Returns, credit Accounts Receivable.. The credit memo takes back the income on the returned goods and lowers what the customer owes. No money changed hands, so Cash isn't involved.

4. A supplier credits you for damaged goods on a bill you haven't paid yet. The vendor credit:

   1. Puts the credit back in your bank account as cash.
   2. Lowers what you owe and the cost of the goods.
   3. Adds to what you owe.
   4. Increases your inventory and what you owe.

   Answer: B) Lowers what you owe and the cost of the goods.. It debits Accounts Payable and credits the inventory or expense account the bill used. No money changes hands.

5. Entering a vendor statement as a bill, when its invoices are already in your books:

   1. Keeps the vendor's balance current.
   2. Overstates expenses and Accounts Payable.
   3. Understates Accounts Payable.
   4. Records a payment on the account.

   Answer: B) Overstates expenses and Accounts Payable.. A statement only summarizes bills you already have. Entering it as a bill records those purchases a second time.

6. When a customer's check bounces, you should:

   1. Put it back in Accounts Receivable and reduce Cash.
   2. Write it off as bad debt.
   3. Delete the original payment and the deposit it was on.
   4. Record it as a sales return.

   Answer: A) Put it back in Accounts Receivable and reduce Cash.. The bank took the money back, so the customer owes it again. It isn't a bad debt unless they never pay.

7. A refund check for a customer's overpayment:

   1. Is a business expense.
   2. Reduces sales.
   3. Clears the customer's credit balance.
   4. Should be entered as a credit memo instead.

   Answer: C) Clears the customer's credit balance.. The overpayment sits in Accounts Receivable as a credit. The refund check debits A/R and credits Cash, which brings the customer back to zero.

8. Under accrual accounting, a service you buy is an expense in the period when:

   1. You receive the service.
   2. The bill is dated.
   3. You pay the bill.
   4. You choose, as long as you're consistent.

   Answer: A) You receive the service.. Accrual records an expense when you receive the service. A repair done in December and billed in January is a December expense.