Multiple Choice
Which of the following is a potential drawback of speeding up the collection of receivables?
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7. Receivables and Investments
Types of Receivables
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Which of the following is an example of a note receivable?
A
A deposit paid in advance for future services
B
An unpaid invoice for goods sold on account
C
A check received from a customer and deposited the same day
D
A signed promissory note from a customer agreeing to pay in 90 days
Verified step by step guidance1
Understand the definition of a note receivable: A note receivable is a formal, written promise (usually in the form of a promissory note) from a customer or debtor to pay a specific amount of money at a future date. It is a financial asset for the company holding the note.
Analyze the options provided in the question to determine which one fits the definition of a note receivable.
Option 1: 'A deposit paid in advance for future services' - This is not a note receivable because it represents a prepayment for services, not a formal promise to pay a specific amount in the future.
Option 2: 'An unpaid invoice for goods sold on account' - This is an account receivable, not a note receivable, as it lacks the formal written promise (promissory note) required for a note receivable.
Option 3: 'A signed promissory note from a customer agreeing to pay in 90 days' - This fits the definition of a note receivable because it is a formal written promise to pay a specific amount within a specified time frame.
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