Multiple Choice
Which of the following is considered an asset of the commercial banking system?
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7. Receivables and Investments
Types of Receivables
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Which of the following is classified as an accounts receivable on a company's balance sheet?
A
A note receivable due in two years
B
A loan made to a company officer
C
Amounts owed by customers for goods sold on credit
D
Interest earned but not yet received
Verified step by step guidance1
Understand the concept of accounts receivable: Accounts receivable refers to amounts owed to a company by its customers for goods or services sold on credit. It is recorded as a current asset on the balance sheet because it is expected to be collected within a short period, typically within one year.
Analyze the options provided: Review each option to determine whether it fits the definition of accounts receivable. For example, a note receivable due in two years is not classified as accounts receivable because it is a long-term asset. Similarly, a loan made to a company officer is not related to customer transactions and is classified differently.
Focus on the correct option: Amounts owed by customers for goods sold on credit directly match the definition of accounts receivable. These are amounts expected to be collected from customers within the normal operating cycle of the business.
Clarify why other options are incorrect: Interest earned but not yet received is classified as accrued revenue, not accounts receivable. It represents income earned but not yet collected, which is recorded separately on the balance sheet.
Conclude the classification: Based on the analysis, amounts owed by customers for goods sold on credit are correctly classified as accounts receivable on the company's balance sheet.
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