Multiple Choice
Which of the following is considered a liquid asset?
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7. Receivables and Investments
Types of Receivables
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Which of the following is classified as a type of receivable in financial accounting?
A
Accounts Receivable
B
Accounts Payable
C
Prepaid Expenses
D
Inventory
Verified step by step guidance1
Understand the concept of receivables: In financial accounting, receivables refer to amounts owed to a company by its customers or other parties. These are considered assets because they represent future cash inflows.
Analyze the options provided: Accounts Receivable, Accounts Payable, Prepaid Expenses, and Inventory. Determine which of these fits the definition of receivables.
Focus on Accounts Receivable: This term specifically refers to money owed to a company by its customers for goods or services provided on credit. It is classified as a type of receivable and recorded as an asset on the balance sheet.
Eliminate incorrect options: Accounts Payable represents liabilities (amounts owed by the company to suppliers), Prepaid Expenses are payments made in advance for future expenses, and Inventory refers to goods available for sale, none of which are classified as receivables.
Conclude that Accounts Receivable is the correct answer, as it aligns with the definition of receivables in financial accounting.
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