Multiple Choice
Which term refers to the maximum outstanding balance allowed to a customer by a vendor?
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7. Receivables and Investments
Types of Receivables
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
An IOU is an example of which type of receivable?
A
A trade receivable
B
An account receivable
C
An interest receivable
D
A note receivable
Verified step by step guidance1
Understand the concept of a receivable: A receivable is an amount owed to a company by its customers or other parties, typically arising from credit sales or lending activities.
Learn about the types of receivables: Common types include trade receivables (amounts due from customers for goods or services), accounts receivable (short-term amounts due from customers), interest receivable (interest earned but not yet received), and note receivable (a formal written promise to pay a specific amount at a future date).
Define a note receivable: A note receivable is a formal, written agreement where one party promises to pay a specific amount to another party at a future date. It often includes interest and is considered a more formal obligation than accounts receivable.
Relate the IOU to a note receivable: An IOU (I Owe You) is a written acknowledgment of debt, which aligns with the definition of a note receivable because it represents a formal promise to pay a specific amount in the future.
Conclude that the correct classification for an IOU is a note receivable, as it is a formal written promise to pay, distinguishing it from other types of receivables like trade receivables or accounts receivable.
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