Which of the following statements about receivables is NOT true?

• A. Accounts receivable typically arise from sales of goods or services on credit.
• B. Receivables are always classified as current assets, regardless of their collection period.
• C. Receivables represent amounts owed to a business by customers or other parties.
• D. Notes receivable are written promises to pay a specified amount of money at a future date.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of receivables. Receivables are amounts owed to a business by customers or other parties, typically arising from sales of goods or services on credit. They are classified as assets on the balance sheet.
2. Step 2: Differentiate between accounts receivable and notes receivable. Accounts receivable are informal promises to pay, usually arising from credit sales, while notes receivable are formal written promises to pay a specified amount at a future date, often including interest.
3. Step 3: Review the classification of receivables. Receivables are generally classified as current assets if they are expected to be collected within one year or the operating cycle, whichever is longer. However, if the collection period exceeds this timeframe, they may be classified as non-current assets.
4. Step 4: Analyze the statement 'Receivables are always classified as current assets, regardless of their collection period.' This statement is incorrect because receivables can be classified as non-current assets if their collection period extends beyond one year or the operating cycle.
5. Step 5: Conclude that the correct answer to the question is the statement about receivables always being classified as current assets, as it is NOT true based on accounting principles.