Future Business Leaders of America (FBLA) Accounting Practice Test

Which of the following reflects a financial transaction where goods or services are sold, and payment is expected in the future?

1. Immediate Sale

2. Cash Sale

3. Sale on Account

4. Deferred Revenue

The correct answer is: Sale on Account

In accounting, a financial transaction where goods or services are sold with payment expected in the future is known as a sale on account. This type of sale allows the customer to receive the product or service immediately but defers the actual cash transaction to a future date when the customer is expected to pay. This concept aligns with how accounts receivable works; when sales occur on account, a company records a receivable, indicating that it has a right to receive payment from the customer at a later date. This practice is common in many businesses, as it can enhance sales volume by offering credit to customers. In contrast, immediate sales involve payment at the time of the transaction, while cash sales are settled instantly with cash payment. Deferred revenue, on the other hand, refers to payments received in advance for services or goods to be delivered in the future, which is distinct from goods being provided immediately with payment deferred. Thus, a sale on account accurately encapsulates the scenario of providing goods or services now with payment anticipated later.