Chapter 7

Question 1

Amounts due from customers for credit sales; backed by the customer’s general credit standing

Answer 1

ACCOUNTS RECEIVABLE

Question 2

Measure of both the quality and liquidity of accounts receivable; indicates how often receivables are received and collected during the period; computed by dividing net sales by average accounts receivable.

Answer 2

ACCOUNTS RECEIVABLE TURNOVER

net sales / average accounts receivable

Question 3

Process of classifying accounts receivable by how long they are past due for purposes of estimating uncollectible accounts.

Answer 3

AGING OF ACCOUNTS RECEIVABLE

Question 4

Contra asset account with a balance approximating uncollectible accounts receivable; also called ALLOWANCE FOR UNCONLLECTIBLE ACCOUNTS.

Answer 4

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Question 5

Procedure that:

• estimates and matches bad debts expense with its sales for the period and/or
• reports accounts receivable at estimated realizable value.

Answer 5

ALLOWANCE METHOD

Question 6

Accounts of customers who do not pay what they have promised to pay; an expense of selling on credit; also called UNCOLLECTIBLE ACCOUNTS.

Answer 6

BAD DEBTS

Question 7

Method that records the loss from an uncollectible account receivable at the time it is determined to be uncollectible; no attempt is made to estimate bad debts.

Answer 7

DIRECT WRITE-OFF METHOD

Question 8

Charge for using money (or other assets) loaned from one entity to another.

Answer 8

INTEREST

Question 9

Entity who signs a note and promises to pay it at maturity.

Answer 9

MAKER OF THE NOTE

Question 10

Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses.

Answer 10

MATCHING (EXPENSE RECOGNITION) PRINCIPLE

Question 11

Prescribes that accounting for items that significantly impact financial statement and any inferences from them adhere strictly to GAAP.

Answer 11

MATERIALITY CONSTRAINT

Question 12

Date when a note’s principal and interest are due.

Answer 12

MATURITY DATE OF A NOTE

Question 13

Entity to whom a note is made payable.

Answer 13

PAYEE OF THE NOTE

Question 14

Amount that the signer of a note agrees to pay back when it matures, not including interest.

Answer 14

PRINCIPAL OF A NOTE

Question 15

Written promise to pay a specified amount either on demand or at a definite future date, is a NOTE RECEIVABLE for the lender but a NOTE PAYABLE for the lendee.

Answer 15

PROMISSORY NOTE (OR NOTE)

Question 16

Expected proceeds from converting an asset into cash.

Answer 16

REALIZABLE VALUE