 In this presentation, we will take a look at multiple choice questions related to receivables. First question, a promissory note received from a customer is recorded as A, an equity account, B, an accounts receivable account, C, always a current asset, D, always a non-current asset, or E, a current or non-current asset. Either at one more time, go through the process of elimination. Question is, a promissory note received from a customer is recorded as A, an equity account. So a promissory note, if we receive the promissory note from the customer, might help by thinking of the journal entry related to that. So if we receive the promissory note, typically we might have a sale that we made and we credit sales, and then the debit might be the note receivable rather than accounts receivable typically because possibly the dollar amount was larger, a longer term that we have that we're going to receive the note receivable for, and therefore we want a formal note. So the note receivable then is typically going to be some type of asset we made a sale instead of accounts receivable. We have a note receivable. So the promissory note isn't typically going to deal with equity, although the other side is increasing net income and therefore increasing equity, but the note isn't. So I'm going to say that's not a B, says an accounts receivable account. Now we'll leave that, it is a receivable, so we might say, hmm, it's a receivable, but I'll leave that for now. D says always a current asset type of account. And if we read through the rest of these, D says always a non-current asset. So note that those two are basically exclusive to each other. So if one of those is true, then the other, they kind of cancel each other out. And then E says a current or non-current asset. So if we look at these three, they're all kind of related. So if we go through this one more time, a promissory note received from a customer is recorded as either an account receivable account, always a current asset, always a non-current asset, or a current or non-current asset. Now whatever a question says always, we want to be careful of that. If it says always, you know, all we need is one exception to make that to be untrue. So E, I'm leaning forward just because of that. And the reason for that, we may think that that'd be the case where the note receivable would always be a non-current would probably be the way most people would think of that because if it were current, we may think that it should go into accounts receivable and not notes receivable. But the definition of a note receivable really isn't that it's over a year. That's the definition of a current asset, a current asset being something that's going to be due typically within the year making it current. And the note receivable may be a note receivable not due for more than a year, but isn't necessarily so. So the note receivable could be something longer typically than a normal accounts receivable but still due within a year. So therefore E is really looking good here because the note receivable could be current or it could be non-current just depending on how long the term of the note receivable is. And that really eliminates C and D. B says an account receivable and accounts receivable it's still a receivable but it is different so notes receivable and accounts receivable are similar in nature but not the same in nature. So it's not B and it looks like E is our best answer. Once again the question is a promissory note received from a customer is recorded as E a current or non-current asset. Next question. The quality of receivables is A the reputation of the seller B the speed of collectability C the likelihood of collection D the reputation of the purchaser or E the interest rate. So if we go through this one more time we're going to say the quality of a receivable is the reputation of the seller. Now if we're talking about reputation and we're talking about the receivable remember what a receivable is it's going to be something due from a customer. So we're not really talking about the reputation of the seller in this case if we're concerned with anything it would be the reputation of the person who needs to pay because we're trying to value whether or not the receivable the quality of the receivable is good. So the asset of the receivable representing stuff that is owed to us is it good. That doesn't deal with the seller's reputation but the customer. B the speed of collectability now that could be a factor in the quality. So we'll keep that C says the likelihood of collectability that too seems like a pretty good factor in terms of determining how valuable the receivables are D says the reputation of the purchaser and again if we're looking at reputation we would be considering the purchaser more than the other side of the transaction the business. And then E says the interest rate. The quality we're not really talking about the interest rate here and you know some receivables if we're talking about accounts receivable won't even have an interest rate so we might consider a higher interest rate to be better but that's not really what we're talking about in terms of the quality with regard to most receivables including accounts receivable which doesn't have an interest rate. So once we got we're left with BC and D question one more time the quality of a receivable is B the speed of collectability C the likelihood of collection or D the reputation of the purchaser. And I think of all of those the likelihood of collection is really the most concerning factor here speed might be better if we get it faster that might make some you know some receivables more quality than the others and the reputation of the purchaser may have something to do with whether or not it's going to be a collectible or not but ultimately our major concern is collectability. So I think C is the best of these answers speed is not you know the only thing it has that kind of has to do with collectability in some way and D also is not the only thing we're looking at we're looking at collectability which may you know take into account the reputation of the purchaser. So final answer the quality of receivables is C the likelihood of collection.