Multiple Choice
Which of the following is an example of a nontrade receivable?
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7. Receivables and Investments
Types of Receivables
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Which of the following best describes a 'trade receivable'?
A
An amount owed to a business by its customers for goods or services sold on credit.
B
A payment made in advance for future goods or services.
C
A note receivable that earns interest over time.
D
A loan made by a company to its employees.
Verified step by step guidance1
Understand the term 'trade receivable': A trade receivable refers to an amount owed to a business by its customers for goods or services sold on credit. It is recorded as an asset in the company's balance sheet.
Analyze the options provided: The correct description of a trade receivable should align with the definition above.
Option 1: 'An amount owed to a business by its customers for goods or services sold on credit' matches the definition of a trade receivable. This is the correct answer.
Option 2: 'A payment made in advance for future goods or services' refers to a prepaid expense, not a trade receivable.
Option 3 and Option 4: 'A note receivable that earns interest over time' and 'A loan made by a company to its employees' are unrelated to trade receivables. These are different types of receivables or financial arrangements.
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