Multiple Choice
Which term refers to amounts owed to a business by its customers for goods or services delivered on credit?
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7. Receivables and Investments
Types of Receivables
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Which of the following is classified as a trade receivable?
A
Tax refunds receivable
B
Interest receivable from investments
C
Advances to employees
D
Accounts receivable from customers for goods sold on credit
Verified step by step guidance1
Understand the concept of trade receivables: Trade receivables are amounts owed to a business by its customers for goods sold or services provided on credit. These are directly related to the core operations of the business.
Analyze the options provided: Tax refunds receivable, interest receivable from investments, and advances to employees are not directly related to the sale of goods or services on credit. These are classified under other receivables or assets.
Focus on the correct classification: Accounts receivable from customers for goods sold on credit is directly tied to the business's primary operations and represents amounts owed by customers for credit sales.
Differentiate trade receivables from other receivables: Trade receivables arise from the sale of goods or services, while other receivables (e.g., tax refunds, interest, advances) arise from non-operational activities.
Conclude that the correct classification of trade receivables is accounts receivable from customers for goods sold on credit, as it aligns with the definition and purpose of trade receivables.
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