Chapter 5 Key Words Flashcards
A source document that identifies the date of sale, the customer, the specific items sold, the dollar amount of the sale, and the payment terms.
invoice
Transfer of goods or services to a customer today while bearing the risk of collecting payment from that customer in the future. Also known as sales on account or services on account
credit sales
The amounts owed to the company by its customers from the sale of goods or services on account
accounts receivable
A company’s total revenues less any discounts, returns, and allowances.
net revenues
Reduction in the listed price of a good or service.
trade discount
Customer returns a product.
sales return
Seller reduces the customer’s balance owed or provides at least a partial refund because of some deficiency in the company’s good or service
sales allowance
An account with a balance that is opposite, or “contra,” to that of its related revenue account.
contra revenue account
Reduction in the amount to be received from a credit customer if collection on account occurs within a specified period of time.
sales discount
Customers’ accounts that no longer are considered collectible.
uncollectible accounts
Method of reporting accounts receivable for the net amount expected to be collected.
allowance method
Contra asset account representing the amount of accounts receivable not expected to be collected.
allowance for uncollectible accounts
The difference between total accounts receivable and the allowance for uncollectible accounts.
net accounts receivable
The cost of estimated future bad debts that is reported as an expense in the current year’s income statement.
bad debt expense
Method of estimating uncollectible accounts based on the percentage of accounts receivable expected not to be collected.
percentage-of-receivables method
Basing the estimate of future bad debts on the various ages of individual accounts receivable, using a higher percentage for “old” accounts than for “new” accounts.
aging method
A group of individual accounts associated with a particular general ledger control account.
subsidiary ledger
Recording bad debt expense at the time we know the account is actually uncollectible.
direct write-off method
Formal credit arrangements evidenced by a written debt instrument, or note.
notes receivable
Number of times during a year that the average accounts receivable balance is collected (or “turns over”). It equals net credit sales divided by average accounts receivable
Net Credit Sales/Average Accounts Receivable = ___
receivables turnover ratio
Approximate number of days the average accounts receivable balance is outstanding. It equals 365 divided by the receivables turnover ratio.
average collection period
receivables that originate from sources other than customers
Tax refund claims, interest receivable, and loans by the company to other entities, including stockholders and employees
nontrade receivables
