Ch 8 Vocabulary

Question 1

Aging the accounts receivable

Answer 1

The analysis of customer balances by the length of time they have been unpaid. p 400

Question 2

Allowance method

Answer 2

A method of accounting for bad debts that involves estimating uncollectible accounts at the end of each period. p 399

Question 3

Average collection period

Answer 3

The average amount of time that a receivable is outstanding. It is calculated by dividing 365 days by the receivables turnover. p 412

Question 4

Control account

Answer 4

An account in the general ledger that summarizes the details for a subsidiary ledger and controls it. p 396

Question 5

Derecognized

Answer 5

A note that is removed from the accounts, either when honoured (collected) or dishonoured (not collected). p 407

Question 6

Dishonoured note

Answer 6

A note that is not paid in full at maturity. p 407

Question 7

Financial assets

Answer 7

Receivables and investments that have a contractual right to receive cash or another financial asset. p 394

Question 8

Honoured note

Answer 8

A note that is paid in full at maturity. p 407

Question 9

Net realizable value

Answer 9

The difference between gross receivables and the allowance for doubtful accounts. Net realizable value measures the net amount expected to be received in cash. p 401

Question 10

Promissory note

Answer 10

A written promise to pay a specified amount of money on demand or at a definite time. p 405

Question 11

Receivables turnover

Answer 11

A measure of the liquidity of receivables. It is calculated by dividing net credit sales by the average gross accounts receivable and is expressed as the number of times per year that the accounts receivable are collected. p 412

Question 12

Subsidiary ledger

Answer 12

A group of accounts that provide details of a control account in the general ledger. p 396

Question 13

Trade receivables

Answer 13

Accounts and notes receivable that result from sales transactions. p 394