In basic accounting, which statement correctly defines accounts payable and accounts receivable?

In basic accounting, which statement correctly defines accounts payable and accounts receivable?

• A. Accounts payable are amounts owed to suppliers; accounts receivable are amounts owed by customers.
• B. Accounts payable are assets on the balance sheet.
• C. Accounts payable are income from sales.
• D. Accounts receivable are equity investments.

Answer: (A)

Accounts payable and accounts receivable reflect money tied up in credit transactions. Accounts payable are amounts a business owes to its suppliers, while accounts receivable are amounts a business is owed by its customers. This matters because payable sits on the balance sheet as a liability, representing what you must pay in the future, and receivable sits as an asset, representing cash you expect to collect. You record a payable when you receive goods or services on credit, and a receivable when you provide goods or services on credit. The other statements don’t fit: payable isn’t an asset, revenue is income from sales, and receivable isn’t an equity investment.

Accounts payable and accounts receivable reflect money tied up in credit transactions. Accounts payable are amounts a business owes to its suppliers, while accounts receivable are amounts a business is owed by its customers. This matters because payable sits on the balance sheet as a liability, representing what you must pay in the future, and receivable sits as an asset, representing cash you expect to collect. You record a payable when you receive goods or services on credit, and a receivable when you provide goods or services on credit. The other statements don’t fit: payable isn’t an asset, revenue is income from sales, and receivable isn’t an equity investment.