ch 5, 7 Flashcards
Face amount of receivables less an allowance for accounts whose collection is doubtful (amount actually expected to be collected).
net realizable value (NVR)
Contra asset account that contains an amount equal to the accounts receivable that are expected to be uncollectible.
allowance for doubtful accounts
Account subtracted from another account with which it is associated; has the effect of reducing the asset account with which it is associate
contra asset account
Recording an account receivable previously written off back into the accounting records, generally when cash is collected long after the original due date.
reinstate
Estimating the amount of the allowance for doubtful accounts as a percentage of the outstanding receivables balance.
percent of receivables method
Classifying each account receivable by the number of days it has been outstanding. The aging schedule is used to develop an estimate of the amount of the allowance for doubtful accounts.
aging of accounts receivable
The party issuing a note (the borrower).
maker
The party collecting cash.
payee
Amount of cash actually borrowed.
principal
Fee paid for the use of funds; represents expense to the borrower and revenue to the lender.
interest
The date a liability is due to be settled (the date the borrower is expected to repay a debt).
maturity date
Assets pledged as security for a loan.
collateral
Interest revenue or expense that is recognized before cash has been exchanged.
accrued interest
Entry that updates account balances prior to preparing financial statements.
adjusting entry
Accounting principle of recognizing expenses in the same accounting period as the revenues they produce, using one of three methods: match expenses directly with revenues (e.g., cost of goods sold); match expenses to the period in which they are incurred (e.g., rent expense), and match expenses systematically with revenues (e.g., depreciation expense).
matching concept
Ability to convert assets to cash quickly and meet short-term obligations.
liquidity
Individual or business that issues a note payable, bonds payable, or stock (the party receiving cash). See also maker.
issuer
A liability that results from executing a legal document called a promissory note, which describes the interest rate, maturity date, collateral, and so on.
note payable
The obligation that requires regular payments of principal and interest over the life of the loan.
installment note
Asset that will be converted to cash or consumed within one year or an operating cycle, whichever is longer.
current (short-term) asset
Time required to turn cash into inventory, inventory into receivables, and receivables back to cash.
operating cycle
Obligation due within one year or an operating cycle, whichever is longer.
current (short-term) liability
Balance sheet that distinguishes between current and noncurrent items.
classified balance sheet
