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

The Accounts Receivable account is reduced when the seller:

Issues a credit memorandum to a customer

Sells goods on credit to a customer

Writes off an uncollectible account

Receives payment from a customer

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Verified step by step guidance

Understand the nature of the Accounts Receivable account: Accounts Receivable represents the amount owed to the company by customers for credit sales. It is an asset account that increases when credit sales are made and decreases when payments are received or adjustments are made.

Analyze the impact of receiving payment from a customer: When a customer pays their outstanding balance, the company records the payment as a reduction in Accounts Receivable because the amount owed by the customer decreases.

Identify the journal entry for receiving payment: The company debits the Cash account to reflect the increase in cash and credits the Accounts Receivable account to reduce the outstanding balance owed by the customer.

Compare the other options provided: Issuing a credit memorandum reduces Accounts Receivable by adjusting the amount owed, writing off an uncollectible account reduces Accounts Receivable by removing the balance deemed uncollectible, and selling goods on credit increases Accounts Receivable. Receiving payment is the only option that directly reduces Accounts Receivable through cash collection.

Conclude the correct answer: Receiving payment from a customer directly reduces the Accounts Receivable account because the company collects the owed amount in cash, thereby decreasing the outstanding balance.