chapter 8 Flashcards
(22 cards)
accounts receivable
The right to receive cash in the future from customers for goods sold or for services performed
receivable
A monetary claim against a business or an individual.
debtor
The party to a credit transaction who takes on an obligation/payable.
notes receivable
A written promise that a customer will pay a fixed amount of principal plus interest by a certain date in the future.
maturity date
The date when a note is due.
bad debts expense
The cost to the seller of extending credit. It arises from the failure to collect from some credit customers.
direct write-off method
A method of accounting for uncollectible receivables in which the company records bad debts expense when a customer’s account receivable is uncollectible.
allowance method
A method of accounting for uncollectible receivables in which the company estimates bad debts expense instead of waiting to see which customers the company will not collect from
allowance for bad debt
A contra asset account, related to accounts receivable, that holds the estimated amount of uncollectible accounts.
net realizable value
The net value a company expects to collect from its accounts receivable. Accounts Receivable less Allowance for Bad Debts
percent-of-receivable method
A method of estimating uncollectible receivables by determining the balance of the Allowance for Bad Debts account based on a percentage of accounts receivable.
aging-of-receivables method
A method of estimating uncollectible receivables by determining the balance of the Allowance for Bad Debts account based on the age of individual accounts receivable
percent-of-sales method
A method of estimating uncollectible receivables that calculates bad debts expense based on a percentage of net credit sales.
principal
The amount loaned by the payee and borrowed by the maker of the note
interest
The revenue to the payee for loaning moneythe expense to the debtor.
interest period
The period of time during which interest is computed. It extends from the original date of the note to the maturity date
interest rate
The percentage rate of interest specified by the note.
maturity value
The sum of the principal plus interest due at maturity
dishonor a note
Failure of a note’s maker to pay a note receivable at maturity.
acid-test ratio
The ratio of the sum of cash, cash equivalents, short-term investments, and net current receivables to total current liabilities. The ratio tells whether the entity could pay all its current liabilities if they came due immediately. (Cash including cash equivalents + Short-term investments + Net current receivables) / Total current liabilities
accounts receivable turnover rate
A ratio that measures the number of times the company collects the average accounts receivable balance in a year. Net credit sales / Average net accounts receivable.
days’ sales in receivables
The ratio of average net accounts receivable to one day’s sales. The ratio tells how many days it takes to collect the average level of accounts receivable. 365 days / Accounts receivable turnover ratio.
