Question

Which of the following increases accounts receivable?

1) Sales made on credit
2) Cash sales
3) Purchases made on credit
4) Payment of accounts payable

Answer 1

Sales made on credit increase accounts receivable, reflecting the outstanding money owed to the business. Cash sales do not affect accounts receivable since payment is received immediately, while purchases on credit and payments of accounts payable affect accounts payable instead.

Step-by-step explanation:

The item that increases accounts receivable is sales made on credit. When a business makes sales on credit, it means that the service or product has been delivered, but the payment has not yet been collected. This results in an increase in the company's accounts receivable as the money owed to it is now an asset that it expects to receive in the future.

On the other hand, cash sales directly increase cash and do not impact accounts receivable because payment is received at the time of the sale. Similarly, purchases made on credit increase accounts payable rather than receivable and payment of accounts payable decreases accounts payable without affecting accounts receivable.