When a business issues a sales invoice to a customer for goods sold on credit, that invoice represents which type of account?

Introduction / Context:
Invoices are common business documents, but their accounting impact depends on whether they are issued to customers or received from suppliers. This question focuses on a sales invoice issued to a customer for a credit sale. Understanding that such an invoice represents accounts receivable is essential for accurate recording of revenue and customer balances. It also helps distinguish between receivables and payables in practical situations and in exams.

Given Data / Assumptions:

• The business sells goods or services to a customer on credit, not for immediate cash.
• The business issues a formal sales invoice to the customer, stating the amount due and payment terms.
• The sale is part of normal operating activity.
• The business uses double entry accounting and records the transaction properly.

Concept / Approach:
When a sales invoice is issued to a customer for a credit sale, it documents the amount the customer owes the business. In accounting terms, this amount is recorded as accounts receivable. The invoice is the source document that supports this receivable. It does not represent accounts payable for the issuing business; that would be the case for the buyer receiving a purchase invoice. Therefore, the correct option must state that the invoice represents accounts receivable for the business that made the sale on credit.

Step-by-Step Solution:
Step 1: Identify the direction of the transaction: the business is the seller and the customer is the buyer. Step 2: Recognise that because the sale is on credit, the customer does not pay immediately but agrees to pay later. Step 3: Understand that this creates a claim by the business against the customer, which is accounts receivable. Step 4: Record the transaction by debiting accounts receivable and crediting sales revenue, using the invoice as documentation. Step 5: Treat the invoice as evidence of the receivable, not as a payable or inventory item for the issuing business.

Verification / Alternative check:
For example, a company sells goods worth 25,000 units of currency on 30 day credit and issues an invoice to the customer. The journal entry in the seller books is a debit to accounts receivable for 25,000 and a credit to sales for 25,000. The invoice number is referenced in the accounting records. Thirty days later, when the customer pays, the company debits cash and credits accounts receivable, eliminating the receivable. At every step, the invoice functions as evidence of an accounts receivable; it is not a liability or inventory for the seller. This confirms the correct classification in the answer.

Why Other Options Are Wrong:
Option B is wrong because accounts payable arise when the business receives a purchase invoice from a supplier, not when it issues a sales invoice to a customer. Option C incorrectly suggests that the same invoice is both a receivable and a payable for the issuing business, which is not possible. Option D is incorrect because invoices are formal commercial documents and serve as key source documents in accounting. Option E misclassifies the invoice as inventory, but inventory consists of goods held for sale, not pieces of paper documenting sales already made.

Common Pitfalls:
A common pitfall is to ignore the perspective of the entity when classifying invoices, leading to confusion between receivables and payables. Students may also think of invoices as external paperwork without real accounting impact, which underestimates their role in documenting and controlling receivable balances. In practice and in exams, always consider who is the seller and who is the buyer, and remember that sales invoices issued by a business correspond to accounts receivable in that business accounts.

Final Answer:
Accounts receivable, because it evidences an amount the customer owes to the business for a credit sale.