Utah Contractor Practice Exam

What does the term "accounts receivable" refer to?

1. Cash that has been received

2. Money owed to the business

3. Pending invoices

4. Expenses to be paid

The correct answer is: Money owed to the business

The term "accounts receivable" specifically refers to money owed to a business for goods or services that have been delivered or used but not yet paid for by the customer. It represents a legal obligation for the customer to pay the amount due based on the terms agreed upon in a sales transaction. This is an essential aspect of a company’s balance sheet, as it reflects future cash inflow and is critical for maintaining the company's cash flow. In contrast to the other options: cash received is a completed transaction and does not fall under accounts receivable; pending invoices are a related concept but do not encompass all the money due; and expenses to be paid are liabilities instead of receivables. This clarity on the definition helps in understanding the broader financial practices of managing receivables within a business context.