Ch 7: Accounting for Receivables Key Terms

Vocabulary flashcards based on accounting concepts related to accounts receivable, notes payable/receivable, and bad debts.

Accounts receivable

Amounts due from customers for credit sales; backed by the customer’s general credit standing.

Accounts receivable turnover

Measure of both the quality and liquidity of accounts receivable; indicates how often receivables are received and collected during the period; computed by dividing net sales by average accounts receivable.

Aging of accounts receivable

Process of classifying accounts receivable by how long they are past due for purposes of estimating uncollectible accounts.

Allowance for Doubtful Accounts

Contra asset account with a balance approximating uncollectible accounts receivable; also called Allowance for Uncollectible Accounts.

Allowance method

Procedure that (a) estimates and matches bad debts expense with its sales for the period and/or (b) reports accounts receivable at estimated realizable value.

Bad debts

Accounts of customers who do not pay what they have promised to pay; an expense of selling on credit; also called uncollectible accounts.

Direct write-off method

Method that records the loss from an uncollectible account receivable at the time it is determined to be uncollectible; no attempt is made to estimate bad debts.

Interest

Charge for using money (or other assets) loaned from one entity to another.

Maker of the note

Entity who signs a note and promises to pay it at maturity.

Maturity date of a note

Date when a note’s final principal payment is due.

Payee of the note

Entity to whom a note is made payable.

Principal of a note

Amount that the signer of a note agrees to pay back when it matures, not including interest.

Promissory note (or note)

Written promise to pay a specified amount either on demand or at a definite future date; it is a note receivable for the lender but a note payable for the lendee.

Realizable value

Expected proceeds from converting an asset into cash.