ACC 131 exam 2 Flashcards
aging method
-estimate an uncollectible % amount for each category
-calculate the estimated uncollectible $ amount for each category
-add up across categories to calculate the total $ amount estimated to be uncollectible
bad debt
debt that can’t be collected
accounts receivable
amount the customer owes to the company
default
a customer fails to pay off debt
uncollectible amount
when a company determines how much a customer will not pay back
write off
A company will remove the accounts receivable for an uncollectible amount
net realizable value
the amount a company expects to collect for cash
bank reconciliation
the difference between cash balance on the bank side and the cash balance on the bank side
credit memo
-increases the account
-amounts collected on behalf of the company by the bank
debit memo
-decrease the account
-auto payments and bank fees charged
NSF checks
not having the funds to pay for a check
deposit in transit
company sends cash to bank but the bank hasn’t processed it yet
outstanding checks
checks not yet cleared by the bank
components of internal control
-control environment
-strategic risks
-business process risks
-control activities
-information/communication
-monitoring
internal control activities
-authority/responsibility
-segregation of duties
-documents/records
-safeguard assets/records
-checks on recorded amounts
-human resources controls
direct-write off method
-businesses wait until debt is uncollectible, bad debt expense debit, accounts receivable credit
direct-write off issues
violates matching principle
allowance method
-allowance for doubtful accounts
-contra-asset
-estimate of amount owed that company doesn’t expect to collect
-bad debt expense credit
-allowance for doubtful accounts credit
-balance sheet under accounts receivable
%credit sales
dividing net credit sales by total sales for the period
allowance for doubtful accounts
-contra asset
-reduces accounts receivable
conservatism principle
income and assets should not be overstated
historical cost principle
assets should be recored at price actually paid for them
confirmatory value
provides feedback for previous predictions
predictive value
can be used to predict future outcomes
comparability
financial information for a company should be comparable with similar companies
verifiability
financial information is accurately represented
timeliness
how quickly financial information is available
understandability
financial information should be easily comprehended
adjusting entries
are needed to update all accounts before financial statements can be prepared
closing entries
reset temporary accounts and zero the general ledger
