Multiple Choice
Which of the following items is classified as a receivable on the balance sheet?
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7. Receivables and Investments
Types of Receivables
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When a company records the purchase of goods on credit, which account is increased?
A
Accounts Payable
B
Interest Receivable
C
Accounts Receivable
D
Notes Receivable
Verified step by step guidance1
Understand the nature of the transaction: The company is purchasing goods on credit, meaning it has received goods but has not yet paid for them. This creates a liability for the company.
Identify the type of account affected: A liability account is increased because the company owes money to the supplier. The specific account used to record this liability is 'Accounts Payable.'
Eliminate incorrect options: 'Interest Receivable,' 'Accounts Receivable,' and 'Notes Receivable' are asset accounts, which are not relevant to this transaction. These accounts are used to record amounts owed to the company, not amounts the company owes.
Confirm the correct account: 'Accounts Payable' is the appropriate account to record the liability created by purchasing goods on credit. This account increases because the company now owes money to the supplier.
Review the accounting principle: This transaction follows the accrual basis of accounting, where expenses and liabilities are recorded when incurred, not when cash is paid.
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