Chapter 5 Vocab Flashcards
Accounts receivable
The amounts owed to the company by its customers from the sale of goods or services on account
Aging 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
Allowance for uncollectible accounts
Contra asset account representing the number of accounts receivable not expected to be collected
Allowance method
Method of reporting accounts receivable for the net amount expected to be collected
Average collection period
The approximate number of days the average accounts receivable balance is outstanding. It equals 365 divided by the receivable’s turnover ratio
Bad debt expense
The cost of estimated future bad debts that is reported as an expense in the current year’s income statement
Contra revenue account
An account with a balance that is opposite, or ‘contra,’ to that of its related revenue account
Credit Sales
The 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’
Direct write-off method
Recording bad debt expense at the time we know the account is uncollectible
Invoice
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
Net accounts receivable
The difference between total accounts receivable and the allowance for uncollectible accounts
Net revenues
A company’s total revenues less any discounts, returns, and allowances
Notes receivable
Formal credit arrangements evidenced by a written debt instrument or note
Percentage-of-receivables method
Method of estimating uncollectible accounts based on the percentage of accounts receivable expected not to be collected
Receivables Turnover Ratio
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
Sales allowance
The 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 Discount
Reduction in the amount to be received from a credit customer of collection on account occurs within a specified period of time
Sales return
A customer returns a product
Subsidiary ledger
A group of individual accounts associated with a particular general ledger control account
Trade discount
Reduction in the listed price of a good or service
Uncollectible accounts
Customers’ accounts that are no longer considered collectible
