Multiple Choice
Which of the following is NOT considered a type of receivable in financial accounting?
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7. Receivables and Investments
Types of Receivables
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Which of the following statements is accurate regarding accounts payable?
A
Accounts payable are classified as a type of receivable on the balance sheet.
B
Accounts payable represent amounts a company owes to suppliers for goods or services purchased on credit.
C
Accounts payable arise when a company receives cash in advance from customers.
D
Accounts payable are typically reported as long-term liabilities.
Verified step by step guidance1
Understand the concept of accounts payable: Accounts payable represent amounts a company owes to suppliers for goods or services purchased on credit. They are obligations that arise when a company receives goods or services but has not yet paid for them.
Clarify the classification of accounts payable: Accounts payable are classified as current liabilities on the balance sheet because they are typically due within a short period, usually within one year.
Analyze the incorrect options: Accounts payable are not classified as receivables, as receivables represent amounts owed to the company, not by the company. Additionally, accounts payable do not arise from receiving cash in advance from customers; that situation would create a liability called unearned revenue.
Evaluate the reporting timeframe: Accounts payable are not reported as long-term liabilities because they are generally settled within the short term, making them part of current liabilities.
Confirm the correct statement: The accurate statement is that accounts payable represent amounts a company owes to suppliers for goods or services purchased on credit.
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