chapter 8 Flashcards
(15 cards)
what is a note receivale
-supported by formal notes of credit
-for periods of 30 days or longer
-interest bearing
how are company credit cards treated
as sales on account
Dr. accounts receivable
Cr. sales revenue
interest revenue journal entry
dr. accounts recievale
cr. interest revenue
what is a receivable carrying amount
the collectable amount of an outstanding accounts receivable that will be paid back (providing future benefit) and can be included on the balance sheet
allowance method
to estimate uncollectible amounts at the end of each accounting period
- estimated uncollectible are credited to a contra asset account “ allowances for doubtful accounts”
what is “allowances for doubtful accounts” deducted from & where?
accounts receivables on the balance sheet
what is bad debt expense
the expense account for uncollectible amounts
most common method to estimate uncollectible amount
percentage of receivables approach
- multiply the total receivable amount by managements estimate of what will become uncollectible
- different percentage depending on how long the accounts have been unpaid
- done by using an ageing schedule
what is n aging schedule
places each accounts receivable account balance into a category depending on by how many days the account is outstanding.
formula for calculating carrying amount
gross accounts receivable - allowance for doubtful accounts
two approaches to estimating the allowance
- percentage of receivables: accounts receivable balance x percentage
- percentage of sales: credit sales x percentage
what is the “bad debt expense account”
expense account debited to reduce owners capitol account
formula for calculating interest
principal amount x annual interest rate x time in terms of one year = interest
receivable turn over ratio
net credit sales / (starting accounts recievale balance + ending accounts receivable balance /2)
measures the numbers of times a company is turning its receivables into cash
collection period calculation
days in year / receivables turnover
