Multiple Choice
Consider the relative liquidity of the following assets: accounts receivable, notes receivable, and inventory. Which of these is generally considered the most liquid after cash?
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7. Receivables and Investments
Types of Receivables
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
A stock or store of goods is called a(n):
A
Prepaid Expense
B
Inventory
C
Notes Receivable
D
Accounts Receivable
Verified step by step guidance1
Understand the concept of 'Inventory': Inventory refers to the stock or store of goods that a company holds for the purpose of resale or production. It is classified as a current asset on the balance sheet.
Differentiate between the options provided: Prepaid Expense refers to payments made in advance for goods or services to be received in the future. Notes Receivable represents written promises for amounts to be received. Accounts Receivable refers to amounts owed by customers for credit sales.
Identify the correct term: Since the question asks for the stock or store of goods, the term 'Inventory' is the most appropriate choice as it directly relates to goods held for sale or production.
Relate Inventory to Financial Accounting: Inventory is a key component in determining the cost of goods sold (COGS) and is crucial for calculating gross profit. It is managed through inventory valuation methods such as FIFO, LIFO, or Weighted Average.
Review the importance of Inventory: Proper inventory management ensures accurate financial reporting and helps businesses maintain optimal stock levels to meet customer demand while minimizing holding costs.
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