Chapter 7 Flashcards
Accounts receivable
Amounts customers owe on account.
Aging the accounts receivable
A schedule of customer balances classified by the length of time they have been unpaid.
Allowance method
A method of accounting for bad debts that involves estimating uncollectible accounts at the end of each period.
Average-cost method
An inventory costing method that uses the weighted-average unit cost to allocate the cost of goods available for sale to ending inventory and cost of goods sold.
Bad Debt Expense
The account in which the seller records losses resulting from extending credit.
Cash (net) realizable value
The net amount a company expects to receive in cash from receivables.
Consigned goods
Goods held for sale by one party although ownership of the goods is retained by another party.
Days in inventory
Measure of the average number of days inventory is held; calculated as 365 divided by inventory turnover.
Direct write-off method
A method of accounting for bad debts that involves charging receivable balances to Bad Debt Expense at the time receivables from a particular company are determined to be uncollectible.
Finished goods inventory
Manufactured items that are completed and ready for sale.
First-in, first-out (FIFO) method
An inventory costing method that assumes that the earliest goods purchased are the first to be sold.
FOB destination
Freight terms indicating that ownership of goods remains with the seller until the goods reach the buyer.
FOB shipping point
Freight terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller.
Inventory turnover
A ratio that indicates the liquidity of inventory by measuring the number of times average inventory is sold during the year; computed by dividing cost of goods sold by the average inventory.
Just-in-time (JIT) inventory
Inventory system in which companies manufacture or purchase goods only when needed.
Last-in, first-out (LIFO) method
An inventory costing method that assumes that the latest goods purchased are the first to be sold.
Notes receivable
Written promise (as evidenced by a formal instrument) for amounts to be received.
Percentage-of-receivables basis
A method of estimating the amount of bad debt expense whereby management establishes a percentage relationship between the amount of receivables and the expected losses from uncollectible accounts.
Raw materials
Basic goods that will be used in production but which have not yet been placed in production.
Receivables
Amounts due from individuals and companies that are expected to be collected in cash.
Specific identification method
An actual physical-flow costing method in which particular items sold and items still in inventory are specifically costed to arrive at cost of goods sold and ending inventory.
Trade receivables
Notes and accounts receivable that result from sales transactions.
Weighted-average unit cost
Average cost that is weighted by the number of units purchased at each unit cost.
Work in process
That portion of manufactured inventory that has begun the production process but which is not yet complete.
