Final answer:
When a customer purchases on credit, the business creates an accounts receivable asset on its balance sheet, reflecting the expected payment. Accounts receivable is a key asset for businesses, representing legal obligations of customers to pay in the future.
Step-by-step explanation:
The asset that results when a customer buys goods or services on credit is known as an accounts receivable. This is an asset because it is money owed to the company providing the goods or services, representing a legal obligation for the customer to pay the amount due in the future. On a balance sheet, assets are items of value that a firm owns; in this case, the expectation of payment justifies recording the accounts receivable as an asset.
When a business extends credit to a customer, it uses the customer’s promise to pay as the basis for an asset entry in its financial statements. Essentially, credit is a form of trust whereby one party provides resources to another with the understanding that the resources will be repaid at a later date, and potentially with interest. This sort of transaction is an everyday part of commerce and is a fundamental concept in finance and accounting.