Credit Balances In Accounts Receivable Are Classified As What?

Solution To The MCQ Question

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The correct answer is (a) i.e., Current Liabilities (which is recorded on balance sheet under Current Liabilities Section on Liabilities & Equity Side), as the company received more than the amount due from customers due to overpayments by customers by mistake, defective goods returned by the customers after making payment, or due to some other reasons. So, the company is liable to pay to customers for the amount received in excess of due amount.

Usually, Accounts Receivable or Sundry Debtors' normal balance is debit but it may be credit due to some reasons. In this case, it is a liability for the company to refund the extra amount received than the original invoice price. For example, if Mr. A, a customer, after making payment of $300 for goods sold to him by the company found that the goods are not according to the order specified, then he returned goods worth $300. In this, case, there is credit balance in Mr. A, as an accounts receivable subsidiary ledger as payment received by the company but goods returned by the customer, Mr. A, so it it a current liability for the company to pay to customer, Mr. A for the goods returned by him.