Chapter 8 Flashcards
receivable
occurs when a business sells goods or services to another party on account
monetary claim
creditor
is the party who receives a receivable
debtor
is the party to a credit transaction who is obligated to pay later
accounts receivable
trade receivables, represents the right to receive cash in the future from customers for goods or service performed
Notes receivable
usually have longer terms than accounts receivable than accounts receivable, promissory notes.
maturity date
is the date on which a note receivable is due
Two methods for recording credit card sales
net method and gross method
net method
the total sales less the processing fee assessed equals the net amount of cash deposited by the processor, usually within a few days of the sale date.
gross method
the total sale is deposited within a few days of the actual sale date
the processing fees for all transactions processed for the month are deducted from the company’s bank by the process, often the last day of the month
bad debts expense
arises from failure to collect from some customers who purchase on account
two methods of accounting for uncollectible
direct write-off method
allowance method
direct write-off method
- used by small, nonpublic company
- when the business determines that it never collect from a specific customer
- bad debts expense is recorded
allowance method
is based on the matching principle
-records bad debts in the same period as the sales revenue
three methods to estimate uncollectibles using the allowance method:
- percent of sales
- percent of receivables
- aging of receivables
percent of sales method
computes bad debts expense as percentage of net credit sale, also called income-statement, ignores the balance in the allowance for debts account
