What is the accounting term for amounts the customers owe the organization after services are provided?

• A. Accounts receivable
• B. Accounts payable
• C. Revenue
• D. Notes payable

Answer: (A)

When services are provided, the business has earned revenue, and any amount customers owe becomes an asset called accounts receivable. It’s a current asset because it represents cash the company expects to collect soon. Under accrual accounting, revenue is recognized when the service is performed, not when cash is received, so the amount billed to customers creates accounts receivable. The typical recording is a debit to accounts receivable and a credit to revenue; as cash is collected, accounts receivable is reduced.

Accounts payable is what the company owes to suppliers (a liability). Revenue is the income recognized from delivering services (an income measure, not an asset). Notes payable is a formal debt obligation evidenced by a promissory note (also a liability).