Multiple Choice
Which of the following is an asset use transaction related to receivables?
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7. Receivables and Investments
Types of Receivables
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Which of the following would NOT be classified as a receivable on the balance sheet?
A
Notes Receivable
B
Prepaid Insurance
C
Interest Receivable
D
Accounts Receivable
Verified step by step guidance1
Understand the concept of receivables: Receivables are amounts owed to a company by customers or other parties, typically resulting from sales or lending activities. They are classified as current or non-current assets on the balance sheet.
Analyze each option: Notes Receivable, Interest Receivable, and Accounts Receivable are all forms of receivables because they represent amounts owed to the company. Prepaid Insurance, however, is not a receivable; it is classified as a prepaid expense, which is an asset representing payments made in advance for services or benefits to be received in the future.
Clarify the classification of Prepaid Insurance: Prepaid Insurance is recorded as a current asset on the balance sheet, but it does not represent an amount owed to the company. Instead, it represents an advance payment for insurance coverage.
Compare the classifications: Receivables are amounts expected to be collected, while prepaid expenses are amounts paid in advance for future benefits. This distinction helps identify which items belong in the receivables category.
Conclude the analysis: Based on the definitions and classifications, Prepaid Insurance would NOT be classified as a receivable on the balance sheet.
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