Question

What does a decrease in Accounts Receivable days potentially indicate?

I. Improved collection procedures.
II. The use of more liberal selling terms to promote sales.
III. The use of more restrictive selling terms.
IV. Increased competitive pressures in the marketplace.

a. III and IV only.
b. IV only.
c. I and III only.
d. I only.

Which statement about Accounts Payable is correct?

a. They reflect sales made that are paid for in cash.
b. They normally appear as current assets on the balance sheet.
c. They arise from the purchases of such items as raw materials.
d. They reflect amounts owed to a business by its customers.

Answer 1

1)

Typically a decrease in account receivable days would mean that a business is managing its receivables well as it is now being converted to cash faster to be employed in business. To execute this practically the business may have to take numerous steps like providing interest free credit period, having more restrictive selling terms etc.

Answer is I and III ie because of improved collection procedures and use of more restrictive selling terms

2)

Account payables arise when a business purchases invetory and raw material from a supplier and does not pay in cash. This will be recorded in the balance sheet as current liabilities.

Answer is C) They arise from the purchases of such items as raw materials.