Multiple Choice
To maintain control of cash payments, all payments should be made by check except:
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7. Receivables and Investments
Types of Receivables
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When a company is owed for sales made to customers on credit, the asset is called:
A
Accounts Receivable
B
Inventory
C
Notes Payable
D
Prepaid Expenses
Verified step by step guidance1
Understand the nature of the transaction: When a company sells goods or services on credit, it does not receive cash immediately. Instead, the company records the amount owed by the customer as an asset.
Identify the correct type of asset: The asset that represents amounts owed by customers for credit sales is called 'Accounts Receivable.' This is because it reflects the receivables due from customers.
Eliminate incorrect options: 'Inventory' refers to goods available for sale, not amounts owed by customers. 'Notes Payable' is a liability, representing amounts the company owes to others. 'Prepaid Expenses' are payments made in advance for future expenses, not amounts owed by customers.
Match the correct term: The correct term for amounts owed by customers for credit sales is 'Accounts Receivable,' as it directly relates to the credit sales process.
Conclude: The correct answer is 'Accounts Receivable,' which is the asset that arises from credit sales made to customers.
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