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

Finished goods purchased by individuals external to the organization are considered what type of receivable?

Notes Receivable

Advances to Employees

Accounts Receivable

Interest Receivable

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Verified step by step guidance

Understand the concept of 'Accounts Receivable': Accounts Receivable refers to amounts owed to a company by customers who have purchased goods or services on credit. These are typically short-term receivables and are recorded as current assets on the balance sheet.

Analyze the context of the problem: The question mentions 'finished goods purchased by individuals external to the organization.' This indicates that the goods are sold to customers outside the company, and payment is expected later, which aligns with the definition of Accounts Receivable.

Eliminate incorrect options: Notes Receivable refers to formal written promises to pay, often involving interest, and is not relevant here. Advances to Employees are payments made to employees for future expenses, which is unrelated to external customers. Interest Receivable refers to interest income earned but not yet received, which does not apply to the sale of goods.

Confirm the correct answer: Based on the definition and context, the correct classification for amounts owed by external customers for finished goods is 'Accounts Receivable.'

Apply this understanding to similar scenarios: Whenever goods or services are sold on credit to external customers, the resulting receivable is classified as Accounts Receivable. This helps in identifying and recording transactions accurately in financial statements.