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

What is a primary difference between a note receivable and an account receivable?

Account receivables are always long-term, while note receivables are always short-term.

A note receivable cannot be transferred to another party, but an account receivable can.

A note receivable is supported by a formal written promise to pay, while an account receivable is typically an informal, short-term arrangement.

An account receivable always earns interest, while a note receivable does not.

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Verified step by step guidance

Step 1: Understand the concept of 'Note Receivable' and 'Account Receivable'. A note receivable is a formal written promise to pay a specific amount of money at a future date, often including interest. An account receivable, on the other hand, is an informal arrangement where a customer owes money for goods or services provided, typically short-term and without interest.

Step 2: Analyze the options provided in the problem. Each option describes a potential difference between note receivables and account receivables. Evaluate the accuracy of each statement based on the definitions and characteristics of these terms.

Step 3: Eliminate incorrect options. For example, the statement 'Account receivables are always long-term, while note receivables are always short-term' is incorrect because account receivables are typically short-term, and note receivables can be either short-term or long-term.

Step 4: Consider the correct answer. The statement 'A note receivable is supported by a formal written promise to pay, while an account receivable is typically an informal, short-term arrangement' accurately reflects the primary difference between the two.

Step 5: Conclude that the correct answer is based on the formal nature of a note receivable compared to the informal nature of an account receivable. This distinction is key in financial accounting.