DAVAO ORIENTAL STATE COLLEGE OF SCIENCE AND TECHNOLOGY

Banaybanay Extension Campus

PRELIMINARY EXAMINATION FOR CREDITS AND COLLECTIONS

2ND SEMESTER OF A. Y. 2020-2021

Name:_______________________________ Year and Section: ___________________

Part I -True or False

Instruction: Write True if the statement is correct. Otherwise, write False if the statement is
incorrect. RIGHT MINUS WRONG.

_____ 1. A credit memo is requested by the sales staff to reduce the amount of customer
invoice
because part or all of it will not be collected.
_____ 2. The mission of the credit department sets the tone of the entire credit policy, for it
describes the reasons why the company grants credit.
_____ 3. The credit and collection functions should not be combined in a single department.
_____ 4. New hires may be assigned to easy customers with fewest problems and after which,
larger and more difficult accounts are to be added.
_____ 5. For purposes of confidentiality, members of the credit department shall not discuss
the
contents of customer credit files.
_____ 6. In calculating allowance for bad debts, the billing clerk shall review the accounts
receivable aging report to ensure that reserve is created for older invoices against
which
credits have been created.
_____ 7. In an automated credit management system, the credit approval stamps should be
locked up when not in use.
_____ 8. In a manual credit management system, the credit department may receive paper
copies of the sales orders from the order entry department.
_____ 9. If the sales order is from a new customer and there is an existing unpaid and
unresolved invoice from the customer for a threshold amount, the credit staff may
hold
the sales order.
_____10. If the economy is expanding and customers have more money, it may be acceptable
to
adopt a looser credit policy.

Part II - Identification

Instruction: Identify the word and/or concept that is described in below statements and write
your answer and on the space provided.

___________________ 11. Is the one responsible for calculating the allowance for doubtful
accounts.
___________________ 12. Is a report that shows the credit limit for each customer.
___________________ 13. Is a plan and/ or arrangement in which the entire group is
compensated for its combined performance.
___________________ 14. Is the one who maintains a list of which collection staff are assigned
to each invoice or customer.
___________________ 15. Is the one who reviews review the documentation of customer
contacts on a regular basis, to see if there are any potentially large collection issues that require
accelerated action.
___________________ 16. Are designed and implemented to ensure that a credit review is
conducted in those cases where a large amount of credit is involved, and that only approved
sales orders are fulfilled.
___________________ 17. Are printed at fixed intervals, with each one pointing out overdue
invoices to customers.
___________________ 18. Is/are the ones responsible in issuing a credit application in an
integrated system.
___________________ 19. Is a report that indicates the amount written-off for each customer.
___________________ 20. Is a report that focuses on invoices that are overdue for payment.

Part III – Forms

Instruction: Create a sample form for each scenario as indicated below:

21-30. ABC Company wants to check the amount of profitability for its 3 big customers namely,
Billie Jeans, Nile Garments and Earth Wear. Cost of Sales is 56% of the Total Sales. Bad debts is
25% of the outstanding receivable balance. While commission fees is 10% of Gross Margin.
 Customer Name Profit AR, Beginning Provision for
Doubtful Accounts
Billie Jeans 456,000 230,000 43,999
Nile Garments 214,000 569,234 10,000
Earth Wear 1,010,000 2,345,987 514,021

Prepare the Customer Profitability Report for ABC Company.

31-40. Kyle, the collection manager wants to assess the amount of accounts receivables to one
of its customers, Pia Catering. Below are the details as extracted in the system:

Date Invoice Number Amount

02/05/2020 AXSW324 50,000
05/03/2020 BZAW156 125,000
10/05/2020 XASW987 (250,000)
12/23/2020 CVSW450 359,000

Prepare the Sample Aging Report as of December 31, 2020 using 30-Days bucket time.
41-50. Referring to Item 31-40, assuming that the Board of Directors approved the write-off of
accounts receivable balances which are over 90 days as marketing allowance to its customer.
Prepare the bad debt report.