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

In which of the following situations is a company most likely to issue a note receivable?

When a customer pays cash immediately for goods or services.

When a company receives inventory on account from a supplier.

When a customer needs an extension on payment and agrees to sign a formal written promise to pay with interest.

When a company writes off an uncollectible account as a bad debt.

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Verified step by step guidance

Understand the concept of a note receivable: A note receivable is a formal written promise from a customer to pay a specific amount of money, usually with interest, at a future date. It is typically issued when a customer cannot pay immediately and requires an extension on payment terms.

Analyze the given options: Evaluate each scenario to determine whether it involves the issuance of a note receivable. For example, immediate cash payment does not require a formal promise, and receiving inventory on account is a typical accounts payable transaction, not a note receivable.

Focus on the correct scenario: A note receivable is most likely issued when a customer needs an extension on payment and agrees to sign a formal written promise to pay with interest. This situation aligns with the definition and purpose of a note receivable.

Eliminate irrelevant options: Writing off an uncollectible account as bad debt does not involve issuing a note receivable, as the account is deemed uncollectible and removed from the books.

Conclude the reasoning: The correct situation for issuing a note receivable is when a customer requires an extension on payment and agrees to formalize the obligation with interest, ensuring the company has a legal claim to the payment in the future.