ACCT chapter 6

What is Bad Debt Expense?

It is the expense tied to Accounts Receivable that are uncollectible due to customers being unable or unwilling to pay.

What is the Expense Recognition Rule?

This rule states that expenses are recognized in the same period when the corresponding revenues are generated.

What is the Allowance Method?

A method for accounting for bad debts by writing off uncollectible Accounts Receivable using an allowance account.

What does Allowance for Doubtful Accounts represent?

It is a contra-asset account that reduces total Accounts Receivable to show the amounts expected to be collected.

What are Write-offs?

These are amounts in Accounts Receivable that are considered uncollectible and removed from the company's records.

What is Net Accounts Receivable?

It is the amount a company expects to collect, calculated as gross Accounts Receivable minus the Allowance for Doubtful Accounts.

What is the Percentage of Credit Sales Method?

This method estimates bad debt expense as a percentage of total credit sales.

What is the Aging of Receivables Method?

This method estimates bad debt expense based on how long accounts receivable have been outstanding and their likelihood of being uncollectible.

What is the Expense Recognition Principle?

This principle requires bad debt expense to be recorded in the same period as the credit sales.

What is Net Income?

Net Income is calculated by subtracting total expenses from total revenue, indicating the company’s profit.

What are Credit Sales?

These are sales made with the expectation that payment will be received at a later date.

What are Accounts Receivable?

These are amounts owed to a company by its customers for goods or services that have been delivered.

What is a Contra-asset Account?

It offsets the value of a related asset account, such as Allowance for Doubtful Accounts to reduce Accounts Receivable.

What are Current Receivables?

These are amounts owed to the company that are anticipated to be received within one year.

What is a T-Account?

An accounting tool that helps visualize the debits and credits for a specific account.