Multiple Choice
Which of the following best describes obligations to suppliers of goods?
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7. Receivables and Investments
Types of Receivables
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Which of the following is classified as an accounts receivable?
A
Amounts owed by customers for goods sold on credit
B
Interest receivable on investments
C
Notes receivable from related parties
D
Advances to employees for travel expenses
Verified step by step guidance1
Understand the concept of accounts receivable: Accounts receivable refers to amounts owed to a company by its customers for goods or services provided on credit. It is recorded as an asset on the balance sheet because it represents money that will be received in the future.
Analyze the first option: 'Amounts owed by customers for goods sold on credit.' This fits the definition of accounts receivable because it represents money owed by customers for goods sold on credit.
Evaluate the second option: 'Interest receivable on investments.' This is not classified as accounts receivable. Instead, it is considered interest income or interest receivable, which is a separate category of asset.
Examine the third option: 'Notes receivable from related parties.' Notes receivable are formal written promises to pay a certain amount, often including interest, and are classified separately from accounts receivable.
Review the fourth option: 'Advances to employees for travel expenses.' Advances to employees are considered prepaid expenses or other receivables, not accounts receivable, as they do not arise from credit sales to customers.
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