Which of the following is classified as a note receivable rather than an account receivable?

• A. A customer purchases goods on credit with payment due in 30 days.
• B. A customer signs a formal written promise to pay a specific amount plus interest at a future date.
• C. A business advances cash to an employee for travel expenses.
• D. A company expects to receive a tax refund from the government.

Answer: (B)

Verified step by step guidance

1. Understand the difference between a note receivable and an account receivable. A note receivable is a formal written promise to pay a specific amount, often including interest, at a future date. An account receivable, on the other hand, is an informal agreement where payment is expected for goods or services provided, typically within a short period.
2. Analyze the first option: 'A customer purchases goods on credit with payment due in 30 days.' This describes an account receivable because there is no formal written promise, only an informal agreement for payment within a short period.
3. Evaluate the second option: 'A customer signs a formal written promise to pay a specific amount plus interest at a future date.' This is classified as a note receivable because it involves a formal written agreement and includes interest, which is a key characteristic of notes receivable.
4. Consider the third option: 'A business advances cash to an employee for travel expenses.' This is not classified as either a note receivable or an account receivable. It is typically recorded as an advance or prepaid expense.
5. Review the fourth option: 'A company expects to receive a tax refund from the government.' This is not classified as a note receivable or an account receivable. It is recorded as a receivable from the government, specifically a tax refund receivable.