Accounting Fundamentals Certification (AFC) Practice Test 2025 – The Comprehensive All-in-One Guide to Exam Success!

When a business makes a sale on account, it essentially means that the customer has promised to pay for the goods or services at a later date rather than paying cash upfront. This arrangement creates an asset known as Accounts Receivable.

Accounts Receivable represents the amount of money the business expects to collect from customers who purchased on credit. This asset increases when sales are made on account because it reflects a legal claim against the customer for the amount due. Therefore, as the business recognizes the sale, it also increases its Accounts Receivable to reflect the outstanding invoices.

In contrast, Inventory refers to goods available for sale, which would decrease when a sale occurs, not create an asset. Accounts Payable is a liability, representing what the business owes to suppliers, rather than an amount owed to the business. Cash is only created when payment is received immediately at the time of sale, which is not the case in a credit transaction. Hence, the correct answer is Accounts Receivable, as it accurately describes the asset generated by making a sale on account.