Final Exam, Ch 9-11 (Plus partial Ch 4, 6, 8) Flashcards Preview

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Flashcards in Final Exam, Ch 9-11 (Plus partial Ch 4, 6, 8) Deck (69)
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1

Defn: A monetary claim against a business or an individual.

Receivable

2

A ________ occurs when a business sells goods or services to another party on account (on credit)

Receivable

3

Defn: The party to a credit transaction who takes on an obligation/payable.

Debtor

4

The (3) major types of receivables:

1. Accounts receivable 2. Notes receivable 3. Other receivables

5

Defn: The right to receive cash in the future from customers for goods sold or for services performed.

Accounts receivable

6

_________ receivables are usually collected within a short period of time, such as 30 or 60 days and therefore are reported as current assets on the balance sheet.

Accounts

7

Defn: A written promise that a customer will pay a fixed amount of principal plus interest by a certain date in the future.

Notes receivable

8

What is another name for a Notes receivable?

Promissory note

9

Defn: The date when a note is due

Maturity date

10

Notes receivable due within one year or less are considered ________ assets. Notes receivable due beyond one year are ____________ assets.

- Current - Long-term

11

Separate customer accounts receivable are called _________ accounts.

Subsidiary accounts

12

Defn: The cost to the seller of extending credit arising from the failure to collect from some credit customers.

Bad Debts Expense

13

Customers' accounts receivable that are uncollectible must be ___________ from the books because the company does not expect to receive cash in the future.

removed or written-off

14

(2) methods of accounting for uncollectible receivables and recording the related bad debts expense:

1. Direct write-off method 2. Allowances method

15

Defn: A method of accounting for uncollectible receivables in which the company records bad debts expense when a customer's account receivable is uncollectible.

Direct write-off method

16

When using the Direct write-off method, how does a company journalize the transaction?

1. debiting "Bad Debts Expense" account 2. crediting customers "Accounts Receivable"

17

Why is the direct write-off method not often used except by small, nonpublic companies?

Because it violates the matching principle

18

Defn: 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 Method

19

What is the contra account that is utilized by the Allowance Method?

Allowance for Bad Debts account

20

What account does the contra-account "Allowance for Bad Debt" reduce?

Asset account: "Accounts Receivable"

21

How does a company use the Allowance Method?

- Estimates bad debt expense at the end of the reporting period - Records adjusting journal entry

22

Defn: The net value a company expects to collect from its accounts receivable.

Net Realized Value

23

Formula: Net Realized Value

= Accounts Receivable - Allowance for Bad Debts

24

Which method for accounting for Bad Debt Expense is used under GAAP?

Allowance Method

25

What steps does a company take to journalize bad debt expense using the Allowance Method?

- [AJE] Debit "bad debt expense account" Credit "allowance for bad debt" - Write off the account receivable: Debit "allowance for bad debt" Credit "accounts receivable"

26

Defn: A method of estimating uncollectible receivables that calculates bad debt expense based on a percentage of net credit sales

Percent-of-sales Method

27

Formula: Percent-of-Sales Method

Bad Debts Expense = (Net credit sales) x (%)

28

Defn: The amount loaned out by the payee and borrowed by the maker of the note.

Principal

29

Defn: The entity that signs the promissory note and promises to pay the required amount, also known as the "debtor".

Payee of the note

30

Defn: The revenue to the payee for loaning money - the expense to the debtor.

Interest