Multiple Choice
Which fundamental accounting concept is primarily explained by the balance sheet?
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1. Introduction to Accounting
The Financial Statements
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The balance of Accounts Receivable is shown on which of the following financial statements?
A
Statement of Cash Flows
B
Balance Sheet
C
Statement of Retained Earnings
D
Income Statement
Verified step by step guidance1
Understand the nature of Accounts Receivable: Accounts Receivable represents amounts owed to the company by customers for goods or services provided on credit. It is classified as an asset.
Identify the financial statement that reports assets: The Balance Sheet is the financial statement that lists a company's assets, liabilities, and equity at a specific point in time.
Recognize why Accounts Receivable is not included in other financial statements: Accounts Receivable is not part of the Statement of Cash Flows because it does not directly represent cash inflows or outflows. It is not part of the Income Statement because it does not represent revenue or expenses. It is also not part of the Statement of Retained Earnings, which focuses on changes in equity due to net income and dividends.
Confirm the correct placement: Since Accounts Receivable is an asset, it is reported on the Balance Sheet under the 'Current Assets' section.
Conclude that the Balance Sheet is the correct financial statement for reporting the balance of Accounts Receivable.
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