Accounting 201Chapter 05 Key Words Flashcards
Accounts receivable
The amount of cash owed to the company by its customers from the sale of products or services on account.
Aging method
Using a higher percentage for “old” accounts than for “new” accounts when estimating uncollectible accounts.
Allowance for uncollectible accounts
Contra asset account representing the amount of accounts receivable that we do not expect to collect.
Allowance method
Recording an adjustment at the end of each period to allow for the possibility of future uncollectible accounts. The adjustment has the effects of reducing assets and increasing expenses.
Average collection period
Approximate number of days the average accounts receivable balance is outstanding. It equals 365 divided by the receivables turnover ratio.
Bad debt expense
The amount of the adjustment to the allowance for uncollectible accounts, representing the cost of estimated future bad debts charged to the current period.
Contra revenue account
An account with a balance that is opposite, or “contra,” to that of its related revenue account.
Credit sales
Transfer of products and services to a customer today while bearing the risk of collecting payment from that customer in the future. Also known as sales on account or services on account.
Direct write-off method
Recording bad debt expense at the time we know the account is uncollectible.
Net accounts receivable
The difference between total accounts receivable and the allowance for uncollectible accounts.
Net realizable value
The amount of cash the firm expects to collect.
Net revenues
A company’s total revenues less any discounts, returns, and allowances.
Notes receivable
Formal credit arrangements evidenced by a written debt instrument, or note.
Percentage-of-receivables method
Method of estimating uncollectible accounts based on the percentage of accounts receivable expected not to be collected.
Receivables turnover ratio
Number of times during a year that the average accounts receivable balance is collected (or “turns over”). It equals net credit sales divided by average accounts receivable.
