Financial Accounting Chapter 5 Flashcards
What is another name for accounting for short term investments
Marketable Securities
What are the 2 methods of estimating collectibles?
Percent of sales
Aging of receivables
What is the risk for extending credit to customers?
Some customers do not pay what is owed
Interest Formula
Principal x rate x time
Cost less than market price =
Unrealized loss
Investment revenue is from
Dividends or interest earned
Allowance Method
The estimated amount of uncollectible accounts
What is the time period of Accounting for short term investments?
1 year or less
In Notes Receivable terms what is Maturity Value?
Sum of principal and interest on note
In the allowance method what is recorded that reduces accounts receivable on the balance sheet?
A contra asset
Gains and losses are from….
Sales of Investments
What account goes on the balance sheet that is netted with accounts receivable?
Allowance for uncollectible accounts
Cost greater then market price =
Unrealized gain
What specific account goes on the income statement?
Uncollectible accounts expense
Percent of sales adjust allowance for uncollectible accounts by
The amount of uncollectible account expense
In Notes Receivable terms what is a principal?
Amount borrowed by debtor
What is reported on the balance sheet?
Trading investment
Contra-asset
Always paired with an asset and reduces its balance
Receivables
Monetary claims against others
What the difference between Accounts Receivable and Notes Receivable
Accounts Receivable
-Verbal promise
Notes Receivable
-written promise
What are 2 differences between realized and unrealized?
Realized
- Investment sold to third party
- Gain or loss = difference between selling price and cost
Unrealized
- Company still owns investment
- Gains or loss = difference between market value and cost
In Notes Receivable terms what is Interest
Cost of borrowing money
In Notes Receivable terms what is a creditor?
Party to whom money is owed
What 3 major things are included in the Direct Write Off Method?
Revenues do not match expenses
Uncollectible accounts expense used for write offs
No allowance for uncollectible accounts
What are the 3 categories of Accounting for Short Term Investments?
Trading Investments
Available for Sale
Held to Maturity
Unrealized gain or loss is from
Entry to adjust to market value
Unrealized Gains and Losses
Difference between market price and cost of investment at year-end
In Notes Receivable terms what is a Maturity Date?
Date debtor must pay the note
At year-end how are trading investments adjusted?
Adjusted to their equal market value
The allowance is used to
Absorb specific accounts that are determined to be uncollectible
Why is the direct write off method less preferred than allowance method? (2 things)
Does not match revenues with expenses
Accounts Receivable overstated
In Notes Receivable terms what is a debtor?
Party that owes money
What is the cost of extending credit to customers?
Uncollectible Accounts
What is overstated in the direct write off method?
Accounts Receivable
In Notes Receivable terms what is a creditor also known as?
Lender
Trading investments
Held for a short time and then sold
In Notes Receivable terms what is another name for a debtor?
Borrower
In Notes Receivable terms what is a term?
Length of time money is borrowed
What is the difference between percent of sales and aging of receivables?
Percent of Sales
Income Statement Approach
Aging of Receivables
Balance Sheet approach
What 3 things are reported on the income statement?
Gains and losses
Investment Revenue
Unrealized gain or loss
Aging of Receivables adjust allowance for uncollectible accounts by
The amount of uncollectible accounts receivable
In the allowance method what is always recorded as part of the adjusting process?
An Expense
If the cost is greater than the selling price it is a —-.
Gain
If the cost is less than the selling price it is a —-.
Loss
What is another name for a contra asset
Allowance
Bad Debt Expense
What we are not expected to receive from credit sales
What does bad debt expense always effect?
Allowance for undoubtful accounts
What is another name for allowance for undoubtful accounts?
Uncollectible accounts
What does bad debt expense always effect?
Allowance for undoubtful accounts
What is another name for allowance for undoubtful accounts?
Uncollectible accounts
