Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Types of Receivables

Financial Accounting

7. Receivables and Investments

Types of Receivables

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Multiple Choice

1. Magda is going to finance her car purchase using an auto loan. Which statement below is accurate regarding the type of receivable created for the lender?

The lender will record an interest receivable as the primary receivable.

The lender will record a trade receivable on its balance sheet.

The lender will record an account receivable on its balance sheet.

The lender will record a note receivable on its balance sheet.

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Verified step by step guidance

Understand the concept of receivables: Receivables are amounts owed to a company by its customers or borrowers. They are classified based on the nature of the transaction, such as accounts receivable, notes receivable, or interest receivable.

Differentiate between types of receivables: Accounts receivable typically arise from sales of goods or services on credit, while notes receivable are formal written promises to pay a specific amount, often including interest, at a future date.

Analyze the nature of the transaction: In this case, the lender is providing an auto loan, which involves a formal agreement (promissory note) between the borrower and the lender. This agreement specifies the loan amount, repayment terms, and interest rate.

Determine the correct classification: Since the auto loan is based on a formal written agreement, the lender will record it as a note receivable on its balance sheet. This reflects the legal obligation of the borrower to repay the loan.

Clarify why other options are incorrect: Interest receivable is a secondary receivable that arises from accrued interest, not the primary loan amount. Trade receivables and accounts receivable are not applicable here because they are associated with sales transactions rather than loans.