Chapter 7 Flashcards Preview

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Flashcards in Chapter 7 Deck (27):
1

Short-term, highly liquid investments that can be readily converted to cash with little risk of loss

Cash Equivalents

2

A company's plan to encourage adherence to company policies and procedures, promote operational efficiency, minimize errors and theft, and enhance the reliability and accuracy of accounting data

Internal Control

3

An internal control technique where various functions are distributed amongst employees to provide cross-checking that encourages accuracy and discourages fraud

Separation of Duties

4

A specified balance a borrower of a loan is asked to maintain in a low-interest or noninterest-bearing account at the bank

Compensating Balance

5

Percentage reduction from the list price

Trade Discounts

6

Represent reductions not in the selling price of a good or service but in the amount to be paid by a credit customer if paid within a specific period of time

Cash Discounts

7

For the buyer, views a discount not taken as a part of the cost of the inventory. For the seller, views a discount not taken by the customer as part of the sales revenue

Gross Method

8

For the buyer, considers the cost of inventory the include the net, after-discount amount, and any discounts not taken are reported as interest expense. For the seller, considers sales revenue to be the net amount, after discount, and any discounts not taken by the customer as interest revenue

Net Method

9

The return of merchandise for a refund or for credit to be applied to other purchases

Sales Return

10

An operating expense incurred to boost sales; inherent cost of granting credit

Bad Debt Expense

11

The amount of cash the company expects to actually collect from customers

Net Realizable Value

12

Recording bad debt expense and reducing accounts receivable indirectly by crediting a contra account to accounts receivable for an estimate of the amount that eventually will prove uncollectible

Allowance Method

13

Estimating bad debt expense as a percentage of each period's net credit sales; usually determined by reviewing the company's recent history of the relationship between credit sales and actual bad debts

Income Statement Approach

14

Determination of bad debt expense by estimating the net realizable value of accounts receivable to be reported in the balance sheet

Balance Sheet Approach

15

Applying different percentages to accounts receivable balances depending on the length of time outstanding

Accounts Receivable Aging Schedule

16

An allowance for uncollectible accounts is not used; instead bad debts that do arise are written off as bad debt expense

Direct Write-off Method

17

Notes that bear interest, but the interest is deducted from the face value to determine the cash proceeds made available to the borrower at the outset

Noninterest-bearing Notes

18

Operational Assets should be written down if blank has become significant

Impairment of Value

19

Trade receivables in general rather than specific receivables as collateral; the responsibility for collecting the receivables remains solely with the company

Pledge

20

Using receivables as collateral for loans where specific receivables go directly toward repayment of a debt if that debt goes unpaid

Assigning

21

Financial institution that buys receivables for cash, handles the billing and collection of the receivables, and charges a fee for this service

Factor

22

The company creates a special purpose entity that buys a pool of trade receivables, credit card receivables, or loans from the company and then sells related securities

Securitization

23

The buyer assumes the risk of bad debts

Without Recourse

24

The seller retains the risk of uncollectibility

With Recourse

25

The transfer of a note receivable to a financial institution

Discounting

26

Comparison of the bank balance with the balance in the company's own records

Bank Reconciliation

27

The original terms of a debt agreement are changed as a result of financial difficulties experienced by the debtor

Troubled Debt Restructuring