Ch 5 Receivables and Sales

Credit sales

Transfer goods or services to a customer today while bearing the risk of collecting payment from the customer in the future.

Accounts receivable

Amounts owed to a company by its customers from the sale of goods or services on account.

Revenue

Income recorded once goods or services are provided, even if no cash is received at that time.

Nontrade receivables

Receivables that originate from sources other than customers.

Notes receivable

Formal credit arrangements evidenced by written debt instruments.

Trade discounts

Reduction in the list price of a product or service.

Sales return

Return of goods by the customer resulting in a decrease in revenue.

Sales allowance

A reduction in the selling price of goods/services that a customer is allowed to keep.

Sales discounts

Reductions in sales prices offered to customers to encourage quick payment.

Net revenues

Total revenues less any amounts for returns, allowances, and discounts.

Discount terms

Shorthand way to communicate the amount of discount and the period within which it is available.

Uncollectible accounts

Customer accounts receivable that are no longer expected to be collected.

Allowance method

GAAP method of accounting for uncollectible accounts by estimating future bad debts.

Contra asset

An account that reduces the value of another account, reported with accounts receivable.

Net accounts receivable

Total accounts receivable less the allowance for uncollectible accounts.

Write-off

The act of removing bad debts from accounts receivable and contra accounts.

Percentage of receivables method

Method of estimating uncollectible accounts based on the percentage expected not to be collected.

Subsidiary ledger

A ledger that contains a group of accounts associated with a particular general ledger control account.

Allowance for uncollectible accounts

Estimate reported as a reduction in accounts receivable in the asset section of the balance sheet.

Balance sheet effect of write-off

The write-off does not affect total assets or total expenses.

Future collection probability

Requirement for recognizing revenue upon provision of goods/services.