Financial Accounting: Receivables, Revenues, and Inventory

Vocabulary flashcards covering core accounting topics including contra revenue accounts, receivables, uncollectible accounts, perpetual inventory systems, costing methods, and inventory metrics.

Contra Revenue

The account classification for sales returns, sales allowances, and sales discounts that offset total revenues.

Net Revenues

The calculation determined by: $\text{Total Revenue} - \text{Sales Returns} - \text{Sales Allowances} - \text{Sales Discounts}$.

2/10, n/30

Credit terms stating that the customer receives a $2\%$ discount if payment is made within 10 days; otherwise, the full net balance is due in 30 days.

Allowance for Uncollectible Accounts

A contra asset account that is subtracted from Accounts Receivable on the balance sheet to report receivables at their estimated collectible amount.

Bad Debt Expense Journal Entry

The journal entry posted to record estimated uncollectible receivables: debit Bad Debt Expense and credit Allowance for Uncollectible Accounts.

Notes Receivable

A formal, interest-bearing receivable due in 12 months.

Finished Goods

The inventory account containing manufactured items for which the production process is complete.

Cost of Goods Sold (COGS)

The direct cost of inventory sold, calculated as Net Revenues minus Gross Profit ($\$320,000 - \$40,000 = \$280,000$ in the Ajax example).

First-In, First-Out (FIFO)

An inventory costing method assuming that the earliest purchased goods are sold first, resulting in COGS derived from the earliest unit costs.

Last-In, First-Out (LIFO)

An inventory costing method assuming that the most recently purchased goods are sold first, resulting in COGS derived from the latest unit costs.

Inventory Turnover Ratio

A financial ratio calculated by dividing Cost of Goods Sold by average inventory ($\frac{\$70,000}{\$15,000} = 4.67\text{ times per year}$).

Perpetual Inventory System

An inventory system in which a company maintains a continual record of inventory on hand and inventory purchased and sold.

Operating Profit

The level of profitability representing profit earned from normal business operations.

Lower of Cost and Net Realizable Value (NRV)

An inventory valuation method where each inventory item is written down and reported at the lower value between its original cost and its net realizable value.

Incoming Freight Charges

Shipping costs incurred to receive merchandise that increase the inventory account under a perpetual inventory system.

Sales Return

A transaction that occurs when a customer returns dissatisfied goods to the company.

Sales Allowance

A price reduction granted to a customer due to dissatisfaction, which results in a decrease to net income.