Multiple Choice
A firm that buys goods and services on a given day, but pays for them later, is using which type of credit?
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7. Receivables and Investments
Types of Receivables
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Which type of receivable is most directly associated with amounts owed to a company by customers for services provided on credit?
A
Notes Receivable
B
Accounts Receivable
C
Advances to Employees
D
Interest Receivable
Verified step by step guidance1
Understand the question: The problem is asking which type of receivable is most directly associated with amounts owed by customers for services provided on credit. This requires knowledge of different types of receivables in Financial Accounting.
Define the key terms: 'Receivables' are amounts owed to a company by others. Common types include Accounts Receivable, Notes Receivable, Advances to Employees, and Interest Receivable.
Focus on the context: Services provided on credit typically result in an obligation for the customer to pay the company later. This obligation is recorded as a specific type of receivable.
Analyze the options: (1) Notes Receivable refers to formal written promises to pay a specific amount, often including interest. (2) Accounts Receivable refers to amounts owed by customers for goods or services provided on credit. (3) Advances to Employees are prepayments made to employees, not related to customer transactions. (4) Interest Receivable is the interest earned but not yet received.
Conclude: Based on the definitions, the type of receivable most directly associated with amounts owed by customers for services provided on credit is 'Accounts Receivable.'
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