_____ is where an organization provides a service to a customer, and this customer agrees to pay for the service after it is completed.

• A. Accounts payable
• B. Accounts receivable
• C. Inventory
• D. None of these are correct.

Answer: (B)

The main idea is accounts receivable. When a service is completed and the customer agrees to pay afterward, the organization has a right to future cash, which is recorded as an asset called accounts receivable. This reflects revenue earned but not yet collected. On the balance sheet it’s listed as a current asset, and when the customer eventually pays, cash increases and accounts receivable decreases. This is different from accounts payable, which is what the organization owes to others, or inventory, which are goods held for sale or use. So recognizing the amount due from the customer after the service is performed is the essence of accounts receivable.