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

Which of the following is a characteristic of accounts receivable?

They are always supported by a formal written promise to pay.

They arise from the sale of a company's fixed assets.

They are classified as long-term investments on the balance sheet.

They represent amounts owed to a company by its customers for goods or services sold on credit.

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Verified step by step guidance

Understand the concept of accounts receivable: Accounts receivable represent amounts owed to a company by its customers for goods or services sold on credit. They are considered current assets because they are expected to be collected within a short period, typically within one year.

Clarify the incorrect options: Accounts receivable are not always supported by a formal written promise to pay; this characteristic applies to notes receivable. They do not arise from the sale of fixed assets, as fixed assets are typically sold for cash or other considerations. Additionally, accounts receivable are not classified as long-term investments; they are classified as current assets on the balance sheet.

Identify the correct characteristic: The correct characteristic of accounts receivable is that they represent amounts owed to a company by its customers for goods or services sold on credit.

Relate accounts receivable to the accounting cycle: Accounts receivable are recorded when a company makes a credit sale. They are tracked in the subsidiary ledger and reconciled with the general ledger to ensure accuracy.

Understand the importance of accounts receivable: Managing accounts receivable effectively is crucial for maintaining cash flow and ensuring the financial health of a company. Companies often use aging schedules to monitor overdue accounts and assess the likelihood of collection.