In financial accounting, accounts receivable (A/R) refers to which of the following?

• A. Cash and currency on hand, including coins and money orders
• B. Amounts owed by customers from credit sales of goods or services that are expected to be collected in the near term
• C. Formal written promises (often interest-bearing) requiring payment on a specified future date
• D. Amounts paid in advance for future goods or services, recorded as prepaid expenses

Answer: (B)

Verified step by step guidance

1. Understand that Accounts Receivable (A/R) represents amounts that a company expects to collect from its customers as a result of credit sales of goods or services.
2. Recognize that A/R is classified as a current asset on the balance sheet because it is expected to be converted into cash within the normal operating cycle or one year.
3. Differentiate A/R from other financial terms: cash and currency on hand are liquid assets, formal written promises are notes receivable, and amounts paid in advance are prepaid expenses.
4. Recall that A/R arises when a company sells goods or services on credit, meaning the customer has an obligation to pay in the near term but has not yet paid.
5. Summarize that the correct definition of Accounts Receivable is 'Amounts owed by customers from credit sales of goods or services that are expected to be collected in the near term.'