Inventory and Accounts Receivable Management Quiz

Outstanding amount owed to a firm by its customers from credit sales.

The percentage of credit sales compared to total sales, level of sales, credit terms offered, and credit standards enforced.

A procedure for managing accounts receivable involving credit standards, terms, and collection efforts.

Minimum financial strengths and moral standings that a customer must meet to be granted credit.

A framework that assesses a customer's ability and willingness to repay a loan, using five key factors.

A customer's willingness to pay based on their moral obligations and past payment history.

A customer's ability to pay assessed by their cash flow and ability to manage current obligations.

A customer's ability to pay, based on their possession of resources or their ability to generate those resources.

External factors impacting a customer's ability to pay, potentially affecting the firm's cash flow. The firm must anticipate and consider changes in the business environment like political instability, social values, and other economic factors.

Tangible or intangible assets used as a guarantee for a loan. The collateral should be valuable, liquid (easily turned into cash), and transferable.

The terms under which credit is extended to customers. This includes factors like cash discounts for early payments, discount periods, the length of credit outstanding, and any financial charges for late payments. The credit terms can significantly impact the average collection period and the level of accounts receivables.

A discount offered to customers who pay their invoices within a specified period. This incentivizes early payments and improves cash flow for the business.

The number of days within which a customer can receive a cash discount for early payment. This encourages customers to pay sooner.

The total time allowed for a customer to pay their invoice. This determines the length of the credit period and the amount of time the company needs to wait for payment.

A line of credit granted to a customer, allowing them to purchase goods or services on credit and pay later.

Cash payment is due before the delivery of goods or services. There is no risk of non-payment as credit is not extended.

A payment term that allows a 2% discount if the invoice is paid within 10 days of the shipment date, and the full payment is due within 30 days.

A payment term that allows a 2% discount if the invoice is paid on or around the 10th day following the shipment date; otherwise, the full payment is due within 30 days.

A payment term that allows a 2% discount if the invoice is paid by the 10th day of the following month; otherwise, the full payment is due within 40 days.

A payment term that allows a 2% discount if the invoice is paid within 10 days of receiving the invoice; otherwise, the full payment is due within 40 days.

Materials purchased but not yet used in production, including raw materials and components

Goods that have been partially assembled or processed but are not yet finished products

Products that are fully completed and ready for sale to customers

The potential issues a company could face with low inventory levels, resulting in delays and potential lost sales.

The quantity of inventory that minimizes the total cost of inventory, including ordering and holding costs.

Costs incurred when placing and receiving orders for inventory, including processing, calling, mailing, and receiving.

Costs associated with holding inventory, such as storage, insurance, and the cost of capital tied up in inventory.

The total cost of inventory, calculated as the sum of ordering and carrying costs.

The number of orders placed in a given period.

The cost of placing a single order.

The cost of carrying one unit of inventory for a specific period, usually one year.

The goal of maximizing the number of times inventory is sold and replaced within a given period, to minimize costs and increase profits.

The optimal order quantity that minimizes total inventory costs (ordering and carrying costs).

The amount of inventory kept on hand to buffer against uncertain demand or delays in delivery.

The point at which a new order must be placed to avoid a stockout.

The average amount of inventory held over a given period.

The cost of holding one unit of inventory for a specific time period.

The cost of placing an order for inventory.

The total costs associated with managing inventory, including ordering and carrying costs.

The time it takes for an order to be delivered.

The formula used to calculate the Economic Order Quantity (EOQ), which is the optimal order quantity that minimizes total inventory costs.

The demand for a product during a specific period, such as a week or month.

The cost associated with placing an order, including things like processing fees, delivery charges, and administrative costs.

An inventory pattern where inventory levels decrease steadily as demand is met, and then are replenished instantly when a new order is received.