Multiple Choice
Which of the following is an example of open-end 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
Accounts receivable from customers for goods sold on credit
B
Tax refunds receivable from the government
C
Advances to employees
D
Interest receivable on loans to others
Verified step by step guidance1
Understand the concept of trade receivables: Trade receivables are amounts owed to a business by its customers for goods or services provided on credit. These are directly related to the core operations of the business.
Analyze each option provided in the problem: Determine whether each item listed qualifies as a trade receivable based on its nature and relationship to the business's core operations.
Option 1: 'Accounts receivable from customers for goods sold on credit' - This is a trade receivable because it arises from the sale of goods or services on credit, which is part of the business's primary operations.
Option 2: 'Tax refunds receivable from the government' - This is not a trade receivable because it is unrelated to the sale of goods or services; it is a receivable from the government for tax purposes.
Option 3: 'Advances to employees' and Option 4: 'Interest receivable on loans to others' - Both are not trade receivables because they do not arise from the sale of goods or services. Advances to employees are internal transactions, and interest receivable is related to financing activities, not core operations.
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