Which term describes money owed by customers to the business?

Which term describes money owed by customers to the business?

• A. Accounts payable
• B. Accounts receivable
• C. Notes payable
• D. Notes receivable

Answer: (B)

Money owed by customers to the business is an asset because it represents future cash inflows. This is recorded as accounts receivable, which arises when you sell goods or services on credit and expect to collect payment later. Accounts receivable sits on the balance sheet as money customers owe to you. Accounts payable would be money your business owes to others, so that’s not it. Notes payable refers to formal debt your business owes, a liability. Notes receivable is money owed to you in the form of a promissory note, a specific type of receivable, but the general term for customer debts is accounts receivable.

Money owed by customers to the business is an asset because it represents future cash inflows. This is recorded as accounts receivable, which arises when you sell goods or services on credit and expect to collect payment later. Accounts receivable sits on the balance sheet as money customers owe to you.

Accounts payable would be money your business owes to others, so that’s not it. Notes payable refers to formal debt your business owes, a liability. Notes receivable is money owed to you in the form of a promissory note, a specific type of receivable, but the general term for customer debts is accounts receivable.