Which term describes money owed to your business by customers?

• A. Accounts Payable
• B. Expenses
• C. Accounts Receivable
• D. Revenue

Answer: (C)

Money owed to your business by customers is accounts receivable. It’s an asset because it represents a future cash inflow you expect from customers who bought on credit. When you make a sale on credit, you record accounts receivable, and when the customer pays, you reduce that amount and increase cash. This is different from accounts payable, which is money your business owes to others. Expenses are the costs of operating, while revenue is the income you earn from delivering goods or services (and under accrual accounting, revenue is recognized when earned, which can create accounts receivable if payment hasn’t yet been received).