ACCT CH 05

Accounting for Receivables and Inventory Cost & Liquidity Ratios

account receivable

when a company allows a customer to “buy now, pay later, ” the company’s right to collect cash in the future is called ___ ____.

notes receivable

receivables evidenced by such notes are called ___ ____.

assets

accounts & notes receivable are reported as ____ on the balance sheet.

NRV (net realizable value of accounts receivable)

this represents the amount of receivables a company estimates it will actually collect.

face value less an allowance for doubtful accounts

the net realizable value is the …

allowance for doubtful accounts

this represents a company’s estimate of the amount of uncollectable receivables.

accounts receivable - less: allowance for doubtful accounts

calculate net realizable value of receivables (NRV)

allowance method of accounting for uncollectable accounts

reporting accounts receivable at net realizable value is called the

estimate

the allowance method requires accountants to ___ the amount of uncollectable accounts.

allowance for doubtful accounts

to distinguish the actual balance in accounts receivable from the ret realizable value (NRV), accountants use a contra asset account called

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percent of revenue

this method focuses on determining the uncollectable accounts expense, and is often called the income statement approach.

precent of receivables

this method focuses on determining the best estimate of the allowance balance, and is often called the balance sheet approach.

promissory note

the parties frequently enter into a credit agreement, the terms are legally documented in a

Maker

The person responsible for making payment on the due date is the ___ of the note. They may also be called the borrower/debtor.

Payee

The person to whom the note is made payable is the ___. They may also be called the creditor/lender. The ___ loans money to the maker and expects the return of the principal and the interest due.

Principal

The amount of money loaned by the payee to the maker of the note is the ____.

Interest

The economic benefit earned by the payee for loaning the principal to the maker is ____, which is normally expressed as an annual percentage of the principal amount.

Maturity Date

the date on which the maker must repay the principal and make the final interest payment to the payee is the ___ ___.

Collateral

Assets belonging to the maker that are assigned as security to ensure that the principal and will be paid when due are called collateral.

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