Multiple Choice
Which of the following is true of retirement plans in the context of accounting?
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1. Introduction to Accounting
Types of Accounting
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Which one of the following is a financial asset?
A
Equipment
B
Inventory
C
Prepaid Insurance
D
Accounts Receivable
Verified step by step guidance1
Understand the definition of a financial asset: A financial asset is any asset that derives its value from a contractual claim, such as cash, stocks, bonds, or accounts receivable. It does not include physical assets like equipment or inventory.
Review the options provided: Equipment, Inventory, Prepaid Insurance, and Accounts Receivable.
Analyze each option: Equipment and Inventory are physical assets, meaning they are tangible and used in operations. Prepaid Insurance is a prepayment for future expenses, not a contractual claim.
Focus on Accounts Receivable: Accounts Receivable represents money owed to the company by customers for goods or services provided on credit. This is a contractual claim and qualifies as a financial asset.
Conclude that Accounts Receivable is the correct answer because it meets the definition of a financial asset, unlike the other options provided.
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