Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

What are the primary expenses outlined in the Accounts Receivable Form?

1. Freight expenses and shipping costs

2. Collection expenses and accounts that cannot be collected

3. Legal fees and consulting costs

4. Advertising expenses and promotional offers

The correct answer is: Collection expenses and accounts that cannot be collected

The primary expenses outlined in the Accounts Receivable Form include collection expenses and accounts that cannot be collected. Collection expenses refer to the costs incurred by a business to recover outstanding amounts owed by customers. This can include administrative costs, fees paid to collection agencies, or costs associated with sending reminders. Additionally, accounts that cannot be collected represent bad debts, which are amounts that customers are unlikely to pay. Recognizing these expenses is crucial for accurately assessing a company's financial health and managing cash flow. Properly accounting for these items ensures that the business reflects a realistic view of its receivables and potential losses in its financial statements. In contrast, other options involve expenses that are not directly related to managing or recovering accounts receivable. For instance, freight expenses and shipping costs pertain more to logistics and distribution rather than the collection of payments. Legal fees and consulting costs are also not central to the collection of receivables, as they deal with legal and advisory functions. Advertising expenses and promotional offers are related to marketing efforts, which do not influence the accounting for accounts receivable.