Ch 8 flashcards

Accounts Receivable

Amounts due from individuals and companies that are expected to be collected in cash.

Trade Receivables

Notes and accounts receivable that result from sales transactions.

Bad Debt Expense

An expense recorded for accounts that are deemed uncollectible.

Direct Write-Off Method

A method where bad debt expense is recorded only when a specific account is identified as uncollectible.

Allowance Method

A method involving estimating uncollectible accounts at the end of each period to report receivables at their cash realizable value.

Cash (net) realizable value

The net amount a company expects to receive in cash from its receivables.

Service Charge Expense

Fees charged by the factor or credit card issuer, reported as an operating expense.

Promissory Note

A formal credit instrument representing a written promise to pay a specified amount either on demand or at a definite time.

Maturity Date

The date on which the principal amount of a note is due and payable.

Dishonored Note

A note that is not paid in full at maturity.

Aging Schedule

A table that categorizes accounts receivable based on the length of time they have been outstanding.

Accounts Receivable Turnover

A ratio that calculates how many times a company collects its average accounts receivable during a period.

Average Collection Period

An estimate of how many days, on average, accounts receivable are outstanding.

Credit Policy

A company's guidelines for extending credit to customers.

Segregation of Duties

The practice of dividing responsibilities among different people to reduce risk of fraud.

Collection Experience

The historical behavior of accounts receivable and how efficiently they are collected.

Maturity Value

The total amount due at the maturity date of a note, including interest.

Uncollectible Accounts

Accounts receivable that are not expected to be collected from debtors.

Liquidity of Receivables

The ability of a company to convert receivables into cash quickly.

Expected Credit Loss Model

A method that requires companies to measure expected credit losses and record bad debt expense on all receivables.

Credit Risk

The risk that customers will not pay their debts.