Which term refers to the amount customers owe the business?

Which term refers to the amount customers owe the business?

• A. assets
• B. liabilities
• C. fixed assets
• D. accounts receivable

Answer: (D)

Accounts receivable is the amount customers owe the business when sales are made on credit. It’s an asset because it represents future cash the company expects to receive. It’s a current asset, since it’s typically collected within a short period, and it sits on the balance sheet alongside other assets. This differs from assets in general and from fixed assets, which are long-term tangible assets like equipment. Liabilities, on the other hand, are what the business owes to others, not what customers owe to the business. When customers pay, accounts receivable decreases and cash increases, improving the company’s liquidity.

Accounts receivable is the amount customers owe the business when sales are made on credit. It’s an asset because it represents future cash the company expects to receive. It’s a current asset, since it’s typically collected within a short period, and it sits on the balance sheet alongside other assets. This differs from assets in general and from fixed assets, which are long-term tangible assets like equipment. Liabilities, on the other hand, are what the business owes to others, not what customers owe to the business. When customers pay, accounts receivable decreases and cash increases, improving the company’s liquidity.