Chapter 8 Flashcards
Accounts receivable
An asset, which is a claim against the customer created by selling merchandise or services on credit.
Accounts receivable turnover
A measure of how frequently during the year the accounts receivable are being converted to cash, computed as sales divided by average accounts receivable.
Aging the receivables
The process of analyzing the accounts receivable and classifying them according to various age groupings, with the due date being the base point for determining age.
Allowance for Doubtful Accounts
A contra asset account for accounts receivable in which is recorded the estimate for uncollectible accounts when using the allowance method.
Allowance method
The method of accounting for uncollectible receivables that recognizes an expense by estimating future uncollectible accounts at the end of the accounting period.
Bad debt expense
The operating expense incurred because of the failure to collect receivables.
Days’ sales in receivables
An estimate of the length of time the accounts receivable have been outstanding, computed as average accounts receivable divided by average daily sales.
Direct write-off method
The method of accounting for uncollectible receivables that recognizes an expense only when an account is determined to be worthless.
Dishonored note receivable
A note that the maker fails to pay on the due date.
Maturity value
The amount that is due at the maturity or due date of a note, which is the sum of the face amount and any interest.
Net realizable value
The estimated selling price of an item of inventory less any direct costs of disposal, such as sales commissions; the value of the receivables reduced to the amount that is expected to be collected or realized, computed as accounts receivable less allowance for doubtful accounts.
Notes receivable
A customer’s written promise to pay an amount and possibly interest at an agreed-upon rate; amounts that customers owe for which a formal, written instrument of credit has been issued.
Receivables
All money claims against other entities, including people, business firms, and other organizations.
