Final answer:
The amount of cash owed by customers for credit sales is known as 'accounts receivable'. It's considered a current asset on the balance sheet. For the self-check question, the firm's accounting profit would be $50,000, calculated by deducting total expenses from total revenue.
Step-by-step explanation:
The amount of cash owed to the company by its customers from the sale of products or services on account is known as accounts receivable. These are current assets on the company's balance sheet, representing legal obligations for the customer to pay for the credit sales. Accounts receivable is different from service revenue, which is the income earned after the service has been provided, and accounts payable, which is what the company owes to its suppliers or providers. It also differs from retained earnings, which are the portion of net income not paid out as dividends but retained by the company to reinvest in its core business, or to pay debt.
In response to the self-check question, the firm's accounting profit can be calculated by subtracting the total expenses from the sales revenue. Here is the calculation:
- Total Revenue: $1,000,000
- Total Expenses (Labor + Capital + Materials): $600,000 + $150,000 + $200,000 = $950,000
- Accounting Profit (Revenue - Expenses): $1,000,000 - $950,000 = $50,000