Multiple Choice
Which of the following types of receivables is NOT typically classified as ordinary income for financial accounting purposes?
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7. Receivables and Investments
Types of Receivables
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Which of the following items is classified as a receivable on the balance sheet?
A
Accounts Receivable
B
Accounts Payable
C
Prepaid Insurance
D
Inventory
Verified step by step guidance1
Understand the concept of receivables: Receivables are amounts owed to a company by customers or other parties, typically resulting from sales or services provided on credit. They are classified as assets on the balance sheet.
Analyze each option provided: Accounts Receivable, Accounts Payable, Prepaid Insurance, and Inventory.
Evaluate 'Accounts Receivable': This represents amounts owed to the company by customers for goods or services provided on credit. It is classified as a receivable and recorded as a current asset on the balance sheet.
Evaluate 'Accounts Payable': This represents amounts the company owes to suppliers or creditors. It is classified as a liability, not a receivable, on the balance sheet.
Evaluate 'Prepaid Insurance' and 'Inventory': Prepaid Insurance is an asset but not a receivable; it represents payments made in advance for insurance coverage. Inventory is also an asset but represents goods held for sale, not amounts owed to the company.
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