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

Which of the following is a possible consequence of making a late payment on accounts receivable?

The receivable is immediately written off as a bad debt.

The receivable is automatically converted into a note receivable.

The seller is required to increase the customer's credit limit.

The seller may charge interest or late fees on the outstanding balance.

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Verified step by step guidance

Understand the concept of accounts receivable: Accounts receivable represents money owed to a company by its customers for goods or services provided on credit. Late payments can have financial implications for both the seller and the customer.

Review the potential consequences of late payments: Late payments can lead to additional charges, such as interest or late fees, which are often stipulated in the credit agreement or contract between the seller and the customer.

Eliminate incorrect options: Analyze why the other options are not valid consequences. For example, receivables are not automatically written off as bad debts unless deemed uncollectible, nor are they automatically converted into notes receivable without a formal agreement. Increasing the customer's credit limit is unlikely as it would increase risk for the seller.

Focus on the correct consequence: The seller may charge interest or late fees on the outstanding balance as a way to compensate for the delay in payment and encourage timely payments in the future.

Conclude the reasoning: Late fees or interest charges are common practices in financial accounting to manage accounts receivable and ensure that customers adhere to payment terms.