Chapter 8 GLOSSARY REVIEW Flashcards
What are accounts receivable?
Amounts customers owe on account.
What is accounts receivable turnover?
A measure of the liquidity of accounts receivable, computed by dividing net credit sales by average net accounts receivable.
What is the aging the accounts receivable?
A schedule of customer balances classified by the length of time they have been unpaid.
What is the allowance method?
A method of accounting for bad debts that involves estimating uncollectible accounts at the end of each period.
What is the average collection period?
The average amount of time that a receivable is outstanding, calculated by dividing 365 days by the accounts receivable turnover.
What is a bad debt expense?
An expense account to record losses from extending credit.
What is the cash (net) realizable value?
The net amount a company expects to receive in cash from receivables.
What is the concentration of credit risk?
The threat of nonpayment from a single large customer or class of customers that could adversely affect the financial health of the company.
What is the 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.
What is a dishonored (defaulted) note?
A note that is not paid in full at maturity.
What is a factor?
A finance company or bank that buys receivables from businesses for a fee and then collects the payments directly from the customers.
What is a maker?
The party in a promissory note who is making the promise to pay.
What is notes receivable?
Written promise (as evidenced by a formal instrument) for amounts to be received.
What is payee?
The party to whom payment of a promissory note is to be made.
What is the percentage-of-receivables basis?
A method of estimat- ing the amount of bad debt expense whereby manage- ment establishes a percentage relationship between the amount of receivables and the expected losses from uncollectible accounts.
