Chapter 8 GLOSSARY REVIEW Flashcards
(18 cards)
What are accounts receivable?
Amounts customers owe on account.
What is accounts receivable turnover?
A measure of the liquidity of accounts receivable, computed by dividing net credit sales by average net accounts receivable.
What is the aging the accounts receivable?
A schedule of customer balances classified by the length of time they have been unpaid.
What is the allowance method?
A method of accounting for bad debts that involves estimating uncollectible accounts at the end of each period.
What is the average collection period?
The average amount of time that a receivable is outstanding, calculated by dividing 365 days by the accounts receivable turnover.
What is a bad debt expense?
An expense account to record losses from extending credit.
What is the cash (net) realizable value?
The net amount a company expects to receive in cash from receivables.
What is the concentration of credit risk?
The threat of nonpayment from a single large customer or class of customers that could adversely affect the financial health of the company.
What is the direct write-off method?
A method of accounting for bad debts that involves charging receivable balances to Bad Debt Expense at the time receivables from a particular company are determined to be uncollectible.
What is a dishonored (defaulted) note?
A note that is not paid in full at maturity.
What is a factor?
A finance company or bank that buys receivables from businesses for a fee and then collects the payments directly from the customers.
What is a maker?
The party in a promissory note who is making the promise to pay.
What is notes receivable?
Written promise (as evidenced by a formal instrument) for amounts to be received.
What is payee?
The party to whom payment of a promissory note is to be made.
What is the percentage-of-receivables basis?
A method of estimat- ing the amount of bad debt expense whereby manage- ment establishes a percentage relationship between the amount of receivables and the expected losses from uncollectible accounts.
What is a promissory note?
A written promise to pay a specified amount of money on demand or at a definite time.
What are receivables?
Amounts due from individuals and companies that are expected to be collected in cash.
What are trade receivables?
Notes and accounts receivable that result from sales transactions.
