Question

Non-trade receivables should be reported separately from trade receivables. Why is this statement either true or false?
A) It is true because trade receivables are current assets and non-trade receivables are long term.
B) It is false because all current receivables must be grouped together in one account.
C) It is true because non-trade receivables do not result from business operations and should not be included with accounts receivable.
D) It is false because management can decide how to report receivables.

Answer 1

Answer:

The answer is: C) It is true because non-trade receivables do not result from business operations and should not be included with accounts receivable.

Explanation:

Usually non-trade receivables are current assets that should be converted into cash with a one year period, e.g. employee loans, tax refunds. Sometimes they will need more than one year to be converted into cash, so they have to be classified as non current assets.

These assets were not generated by normal business operations, therefore they should not be included under accounts receivables.