Chapter 5 Flashcards
Net Realizable Value (NRV)
An estimate of how much of the receivables a company will truly receive
NRV Formula
NRV = AR - Allowance
Allowance for Doubtful Accounts
An estimate of the amount of uncollectible receivables
Allowance Method of Accounting for Uncollectible Accounts
Reporting accounts receivable in the financial statement at NRV
Uncollectible Accounts Expense (Bad Debts Expense)
Expense associated with uncollectible accounts receivable
Percent of Revenue Method
A mathematical way of estimating the amount of uncollectible accounts expense
Contra Asset Account
Distinguishes the actual balance in accounts receivables from the net realizable value
Reinstate
Bringing back an account receivable that was originally discarded due to a collection of cash
Percent of Receivables Method
Mathematical method of portraying the amount of the allowance for doubtful accounts
Aging of Accounts Receivable
Counting the days an account receivable has been unpaid for
Promissory Note
A legal document representing a credit agreement between a lender and a borrower
Items on the promissory note
Maker, Principal, Interest, Maturity Date, Collateral, Payee
Accrued Interest
Interest revenue/expense that is recognized BEFORE cash is paid
Adjusting Entry
Entry that updates account balances prior to preparing financial statements
Accrued Interest Formula
Principal * Annual Interest Rate * Time Outstanding = IR
Amount owed * Interest Rate * n/12 = IR
Specific Identification
Mathematical method of keeping and tracking inventory
FiFo Method
Recognizing the first item in the inventory as the first item to be sold
LiFo Method
Recognizing the last item in the inventory as the first item sold
Weighted-Average Method
Method of organizing and tacking inventory based on the average cost per unit
Physical Flow of Goods
Physical movement of goods through the business
Inventory Cost Flow Methods
A transfer of the cost of goods available for sale to goods sold and inventory
Full Disclosure
Show of all information on a company in the financial statement
Consistency
Keep a consistent accounting method throughout accounting periods
