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Multiple Choice
Under the topic of types of receivables, employer contributions made to a qualified plan are best classified as which of the following?
A
Other receivables
B
Accounts receivable
C
Notes receivable
D
Trade receivables
Verified step by step guidance
1
Understand the concept of receivables: Receivables are amounts owed to a company by customers or other parties. They are classified into different types based on their nature and origin, such as accounts receivable, notes receivable, trade receivables, and other receivables.
Analyze the nature of employer contributions to a qualified plan: Employer contributions are payments made by an employer to a retirement or benefit plan for the benefit of employees. These contributions are not directly related to sales or credit transactions with customers.
Differentiate between the types of receivables: Accounts receivable typically arise from credit sales to customers. Notes receivable are formal written promises to pay a specific amount. Trade receivables are amounts owed by customers for goods or services provided. Other receivables include miscellaneous amounts owed to the company that do not fall into the previous categories.
Classify employer contributions: Since employer contributions to a qualified plan do not arise from sales, credit transactions, or formal notes, they are best classified as 'Other receivables.'
Conclude the classification: Employer contributions to a qualified plan are categorized as 'Other receivables' because they represent miscellaneous amounts owed to the company that do not fit into the categories of accounts receivable, notes receivable, or trade receivables.