Which of the following companies is most likely to have a significant amount of accounts receivable? A restaurant A grocery store A hotel A manufacturing company
The correct answer and explanation is:
Correct Answer: A manufacturing company
Explanation (300 words):
Among the given options — a restaurant, a grocery store, a hotel, and a manufacturing company — a manufacturing company is most likely to have a significant amount of accounts receivable.
Accounts receivable refers to the money owed to a business by its customers for goods or services that have been delivered but not yet paid for. This is common in industries where businesses sell products on credit terms, allowing customers (often other businesses) to pay at a later date, typically within 30 to 90 days.
Manufacturing companies often produce goods in large quantities and sell them to wholesalers, retailers, or other businesses, not directly to end consumers. These transactions are usually made on credit, generating significant accounts receivable as the manufacturer waits for payment after the goods have been shipped.
In contrast:
- Restaurants operate primarily on a cash or immediate payment basis. Customers pay for their meals at the time of service, so they carry little to no accounts receivable.
- Grocery stores also receive payment at the point of sale. Even if they allow small-scale store credit in rare cases, the volume is minimal compared to manufacturing operations.
- Hotels might offer corporate billing or group bookings that involve delayed payment, but the majority of their customers (especially individual guests) pay upon check-in or checkout. This limits the size of accounts receivable in most hotel operations.
Therefore, due to the credit-based nature of business-to-business (B2B) transactions, a manufacturing company is far more likely to have large and recurring accounts receivable balances. These receivables are a normal part of their working capital cycle and are carefully monitored to ensure steady cash flow and manage credit risk.