Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Types of Receivables

Financial Accounting

7. Receivables and Investments

Types of Receivables

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Multiple Choice

Which of the following best describes compensating balances?

Cash received in advance from customers for future services.

Short-term investments held by a company to earn interest.

Amounts owed by customers for goods or services sold on credit.

Minimum cash balances that a borrower is required to maintain in a bank account as a condition for a loan.

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Verified step by step guidance

Understand the concept of compensating balances: Compensating balances are minimum cash balances that a borrower is required to maintain in a bank account as a condition for a loan. This ensures the lender has a form of security or collateral.

Eliminate incorrect options: Review each option provided in the problem and determine whether it aligns with the definition of compensating balances.

Option 1: 'Cash received in advance from customers for future services' refers to unearned revenue, not compensating balances. Unearned revenue is a liability until the service is performed.

Option 2: 'Short-term investments held by a company to earn interest' refers to marketable securities or investments, not compensating balances. These are assets intended to generate returns.

Option 3: 'Amounts owed by customers for goods or services sold on credit' refers to accounts receivable, which are assets, not compensating balances. The correct answer is the fourth option, which matches the definition of compensating balances.