Future Business Leaders of America (FBLA) Accounting Practice Test

Which of the following best describes a sale on account?

1. A sale of goods for immediate cash payment

2. The sale of goods that will be paid for later

3. A transaction settled through credit cards

4. A sale with no payment involved

The correct answer is: The sale of goods that will be paid for later

A sale on account refers specifically to a situation where a business sells goods or services to a customer with the understanding that payment will be received at a later date. This means that the customer is given credit and is allowed to buy now and pay later, often documented with an invoice that outlines the terms of the sale. This type of transaction reflects the concept of accounts receivable on the balance sheet, where the business is recognizing that it has a claim for payment from the customer. In contrast, a sale for immediate cash payment requires customers to pay at the time of purchase, which is not the essence of a sale on account. Transactions settled through credit cards involve immediate payment processing and are considered cash sales from a financial reporting perspective, even though the customer may be using credit. A sale with no payment involved would not be classified as a sale at all since there is no transfer of value. Thus, the second option captures the nature of credit sales accurately, focusing on the delayed payment aspect that characterizes a sale on account.