Chapter 7 Cash and Receivables

This set of flashcards covers key terms and concepts related to cash, receivables, and internal control as outlined in Chapter 7.

Cash

Amounts readily available to pay off debt or to use in operations.

Cash Equivalents

Short-term, highly liquid investments, readily convertible to cash with little risk of loss.

Internal Control

A process designed to provide reasonable assurance regarding the achievement of operational objectives.

Sarbanes-Oxley Act

Legislation requiring documentation and assessment of internal controls.

Trade Discounts

A percentage reduction from the list price, often provided to large customers.

Sales Discounts

Reductions in the amount to be paid by a credit customer if paid within a specified period.

Direct Write-Off Method

An accounting method that waits until a specific account is deemed uncollectible before writing it off.

Allowance Method

An accounting approach required by GAAP that estimates bad debts and reduces carrying value of accounts receivable.

Compensating Balances

Amount that offsets bank loan agreements by requiring borrowers to maintain a balance in a bank account.

Aging-of-Receivables

A method for estimating uncollectible accounts by analyzing the age of accounts receivable.

Factoring Arrangement

A financial transaction where a company sells its accounts receivable to a third party at a discount.

Notes Receivable

Written promises to pay a certain amount of money on a specified date.

Discount on Notes Receivable

Represents future interest revenue that will be recognized over time, as it is considered a contra account to the note receivable.

Current Expected Credit Loss (CECL) model

Method in which estimates of credit losses are based on historical information and reasonable forecasts.

Receivables Turnover Ratio

A financial metric that measures how efficiently a company collects its receivables.

Effective Interest Rate

The true cost of borrowing, considering the compensating balance that needs to be maintained.

Sales With or Without Recourse

Conditions under which a seller retains the risk of bad debts when selling accounts receivable.