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 best describes certificates of deposit (CDs) in the context of types of receivables?

CDs are not considered receivables because they are equity investments.

CDs are treated as trade receivables since they result from normal business operations.

CDs are considered notes receivable because they represent loans from consumers to banks.

CDs are classified as accounts receivable because they arise from sales on credit.

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Verified step by step guidance

Understand the concept of receivables: Receivables are amounts owed to a company or entity, typically arising from credit sales or loans. They are classified into categories such as accounts receivable, notes receivable, and trade receivables.

Define certificates of deposit (CDs): CDs are financial instruments issued by banks that represent a fixed-term deposit made by consumers. They are essentially loans from consumers to banks, where the bank agrees to pay back the principal amount plus interest after a specified period.

Analyze the classification of CDs: CDs do not arise from sales on credit, so they cannot be classified as accounts receivable. Similarly, CDs are not equity investments, so they cannot be excluded from receivables entirely.

Determine why CDs are considered notes receivable: Notes receivable represent formal written promises to pay a specific amount of money at a future date. CDs fit this definition because they are formal agreements between consumers and banks, where the bank promises to repay the deposit with interest.

Conclude the correct classification: CDs are considered notes receivable because they represent loans from consumers to banks, backed by a formal agreement specifying repayment terms.