Which term describes the money a business is owed for goods or services?

Which term describes the money a business is owed for goods or services?

• A. Transaction journal
• B. Invoice
• C. Accounts payable
• D. Accounts receivable

Answer: (D)

The main idea being tested is money a business is owed by customers for goods or services it has already provided. That amount is recorded as accounts receivable, an asset on the balance sheet. It shows future cash inflows because customers are obligated to pay. The process typically starts when a sale is made on credit and an invoice is issued; the invoice documents the amount due and creates the receivable. When payment is received, the receivable is settled and cash increases. An invoice is the bill sent to the customer—not the money itself—so it documents what’s owed but isn’t the asset on its own. Accounts payable, on the other hand, are what your business owes to others, a liability. A transaction journal is a comprehensive record of all financial movements, not specifically the concept of money owed to you by customers.

The main idea being tested is money a business is owed by customers for goods or services it has already provided. That amount is recorded as accounts receivable, an asset on the balance sheet. It shows future cash inflows because customers are obligated to pay. The process typically starts when a sale is made on credit and an invoice is issued; the invoice documents the amount due and creates the receivable. When payment is received, the receivable is settled and cash increases.

An invoice is the bill sent to the customer—not the money itself—so it documents what’s owed but isn’t the asset on its own. Accounts payable, on the other hand, are what your business owes to others, a liability. A transaction journal is a comprehensive record of all financial movements, not specifically the concept of money owed to you by customers.