Accounting Fundamentals Certification (AFC) 2025 – 400 Free Practice Questions to Pass the Exam

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What is an example of a situation that increases accounts receivable?

Cash sale of goods

Providing services on credit

When a business provides services on credit, it allows customers to pay for those services at a later date rather than immediately. This action increases accounts receivable because the business is essentially extending credit to its customers, creating a claim for future payment. The amount owed by the customer is recorded as an asset on the balance sheet under accounts receivable until the payment is collected.

In contrast, cash sales of goods would not increase accounts receivable, but rather result in immediate cash inflow. Similarly, paying off an accounts payable reduces liabilities and would not affect accounts receivable. An owner investing cash increases the business's equity and cash balance but does not have any direct impact on accounts receivable. Therefore, providing services on credit is a clear situation that leads to an increase in accounts receivable.

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Paying off an accounts payable

Owner investing cash

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