Accounting 100: Chapters 8–10 In-Depth Notes (Final Exam Edition)

These flashcards cover key vocabulary terms and definitions from the provided notes on accounting concepts related to receivables, long-lived assets, liabilities, and financial statement analysis.

Accounts Receivable

An asset that is short-term and informal, representing amounts owed by customers.

Notes Receivable

A formal written promise to pay, which includes interest.

Allowance for Doubtful Accounts (AFDA)

A contra-asset account that reduces the total accounts receivable to reflect estimated uncollectibles.

Bad Debt Expense (BDE)

An expense that reflects the expected uncollectibles from accounts receivable.

Depreciable Amount

The total amount that can be depreciated, calculated as Cost minus Residual Value.

Residual Value

The estimated value of a long-lived asset at the end of its useful life.

Book Value

The value of an asset, calculated as Cost minus Accumulated Depreciation.

Current Liabilities

Obligations due within 12 months, such as accounts payable, wages, and taxes.

Long-Term Liabilities

Obligations due after one year, including notes payable and bonds.

Current Ratio

A financial ratio calculated by dividing current assets by current liabilities to assess liquidity.

Debt Ratio

A solvency ratio calculated as total liabilities divided by total assets.

Return on Equity (ROE)

A measure of profitability calculated as Net Income divided by Owner's Equity.

Gross Profit Calculation Error

Mistake made by not using Net Sales (after returns/discounts) when calculating gross profit.

What does EPS stand for?

Earnings Per Share.

How is EPS calculated?

Net Income divided by Average Shares.

What does EPS indicate?

Shareholder income.

What is Times Interest Earned?

A financial ratio that indicates a company's ability to meet its debt obligations.

How is Times Interest Earned calculated?

EBIT divided by Interest Expense.

What does Times Interest Earned assess?

A company's solvency.

What does the Current Ratio of 2.5:1 indicate?

It indicates there are $2.50 in assets for every $1 of debt.

What does a Debt Ratio of 80% signify?

It signifies that the company is highly leveraged, which is considered risky.

What is ROE and what does 15% mean?

Return on Equity; it means the company earns 15 cents for every $1 invested by the owner.

What is Horizontal Analysis?

Analysis that measures year-to-year percentage changes.

What is Vertical Analysis?

Analysis that represents a line item as a percentage of the total (e.g., percentage of sales).

What is the Straight-Line depreciation method?

A method where depreciation expense is calculated as (Cost - Residual) / Useful Life.

How do you calculate Monthly Depreciation?

Useful Life (in months)Cost−Salvage Value​

What is the journal entry for borrowing cash?

Dr. Cash / Cr. Notes Payable

What is the journal entry for accruing interest?

Dr. Interest Expense / Cr. Interest Payable

What is the journal entry for repaying a note payable?

Dr. Notes Payable, Dr. Interest Payable, Cr. Cash.

What are Payroll Liabilities?

Wages Payable, Employer deductions (EI, CPP, taxes), and Employer expenses

What is the % of A/R method?

A method that uses a simple percentage of the ending balance of Accounts Receivable.

What is the Aging of A/R method?

A method that calculates percentages based on how overdue the account is.

What is the formula for Ending Accounts Receivable (A/R)?

Ending A/R = Opening A/R + Credit Sales - Returns - Collections - Write-offs

How do you calculate Bad Debt Estimate (BDE)?

BDE = Required Ending Allowance for Doubtful Accounts (AFDA) - Current AFDA