Accounts Receivables and Inventory Management

Flashcards covering key concepts related to accounts receivables, valuation, inventory methods, liquidity measurements, and associated accounting practices.

Accounts Receivable (AR)

Current assets expected to be collected within a year.

Net Realizable Value (NRV)

The amount of accounts receivable that is expected to be collected, calculated as Total AR minus Allowance for doubtful accounts.

Allowance for Doubtful Accounts

An estimate of the amount of uncollectible receivables.

Allowance Method

A method of accounting for uncollectible accounts that requires estimates of uncollectible amounts before they occur.

Income Statement Approach

Also known as the percent of revenue method; focuses on determining the uncollectible accounts expense.

Balance Sheet Approach

Also known as the percent of receivables method; this approach focuses on determining the best estimate of the allowance balance.

Liquidity

How quickly assets are expected to be converted to cash during normal operations.

FIFO (First In, First Out)

An inventory cost flow method where the oldest inventory items are considered sold first.

LIFO (Last In, First Out)

An inventory cost flow method where the most recently purchased inventory items are considered sold first.

Liquidity Ratios

Ratios that indicate a company’s ability to pay short-term debts, focusing on current assets and current liabilities.

Accounts Receivable Turnover

A financial ratio that measures how efficiently a firm uses its assets.

Inventory Turnover

A measure of how many times inventory is sold and replaced over a period.

Maturity Date

The date on which a loan or note is due to be repaid.

Principal

The amount of money loaned by the payee to the maker of the note.

Interest

The economic benefit earned by the payee for lending the principal to the maker, usually expressed as an annual percentage.