Chapter 8: Reporting and Analyzing Receivables Flashcards
Accounts receivable
Amounts customers owe on account.
Accounts receivable turnover
A measure of the liquidity of accounts receivable, computed by dividing net credit sales by average net accounts receivable.
Aging the accounts receivable
A schedule of customer balances classified by the length of time they have been unpaid.
Allowance method
A method of accounting for bad debts that involves estimating uncollectible accounts at the end of each period.
Average collection period
The average amount of time that a receivable is outstanding, calculated by dividing 365 days by the accounts receivable turnover.
Bad Debt Expense
An expense account to record losses from extending credit.
Cash (net) realizable value
The net amount a company expects to receive in cash from receivables.
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.
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.
Dishonored (defaulted) note
A note that is not paid in full at maturity.
Factor
A finance company or bank that buys receivables from businesses for a fee and then collects the payments directly from the customers.
Maker
The party in a promissory note who is making the promise to pay.
Notes receivable
Written promise (as evidenced by a formal instrument) for amounts to be received.
Payee
The party to whom payment of a promissory note is to be made.
Percentage‐of‐receivables basis
A method of estimating the amount of bad debt expense whereby management establishes a percentage relationship between the amount of receivables and the expected losses from uncollectible accounts.
