Accounts Receivable and Accounts Payable Flashcards

What does accounts receivable represent on a company's balance sheet?

Answer: Money owed to the company by its customers

Accounts receivable is a current asset representing amounts customers owe the company for goods or services delivered on credit.

When a customer pays an outstanding invoice in full, which journal entry is correct?

Answer: Debit Cash, Credit Accounts Receivable

When cash is received, Cash (asset) increases with a debit and Accounts Receivable (asset) decreases with a credit.

What is the normal balance of Accounts Payable?

Answer: Credit

Accounts Payable is a liability account and carries a normal credit balance, increasing when purchases are made on credit.

An accounts receivable aging report categorizes outstanding balances by:

Answer: How long invoices have been outstanding

An aging report groups receivables into time buckets (e.g., 0–30, 31–60, 61–90 days) to identify overdue accounts and estimate bad debt.

When a company purchases inventory on credit terms, the correct journal entry is:

Answer: Debit Inventory, Credit Accounts Payable

Purchasing inventory on credit increases the Inventory asset (debit) and creates an obligation recorded as Accounts Payable (credit).

A credit memo issued to a customer in accounts receivable typically results in:

Answer: A reduction in the amount the customer owes

A credit memo reduces the customer's outstanding balance, often issued for returns, allowances, or billing corrections.

Which of the following best distinguishes accounts payable from notes payable?

Answer: Accounts payable arises from credit purchases; notes payable is a formal written promise to pay

Accounts payable results from routine credit purchases with informal terms, while notes payable is a formal promissory note that may include interest and specific repayment terms.