Chapter 7 Flashcards
What are receivables?
Receivables are amounts owed to a company by customers for goods or services provided on credit.
What is the difference between accounts receivable and notes receivable?
Accounts receivable are amounts due from customers for short-term credit, while notes receivable are formal written promises to pay a specified amount.
How is the allowance method used for bad debts?
The allowance method estimates uncollectible accounts and records an allowance for doubtful accounts to match expenses with revenues.
What is the aging method for estimating bad debts?
The aging method analyzes accounts receivable by age to estimate the likelihood of collection, applying different percentages for each age category.
What is the direct write-off method?
The direct write-off method records bad debts by directly writing off uncollectible accounts when they are deemed uncollectible.
What is the journal entry for writing off a bad debt using the allowance method?
The entry debits the Allowance for Doubtful Accounts and credits Accounts Receivable.
What is a credit policy?
A credit policy outlines the terms and conditions under which credit is extended to customers, including payment terms and credit limits.
How do discounts for early payment affect receivables?
Discounts for early payment incentivize customers to pay their receivables sooner, improving cash flow.
What is a receivable turnover ratio?
The receivable turnover ratio measures how efficiently a company collects its receivables, calculated by dividing net credit sales by average accounts receivable.
Why is monitoring receivables important for a business?
Monitoring receivables is crucial to managing cash flow, assessing credit risk, and ensuring timely collection of amounts owed.
