Chapter 8: Receivables, Bad Debt Expense, and Interest Revenue

These flashcards cover key concepts related to receivables, bad debt expense, and interest revenue as discussed in Chapter 8.

Accounts Receivable

Money owed to a company by its customers for goods or services provided on credit.

Bad Debt Expense

An expense related to accounts receivable that are expected to remain uncollected.

Allowance for Doubtful Accounts

A contra asset account that reduces the total accounts receivable balance to reflect only amounts expected to be collected.

Direct Write-Off Method

A method that records bad debt expenses only when an account is deemed uncollectible, not estimated.

Percentage of Credit Sales Method

Estimates bad debt expense based on a historical percentage of credit sales that leads to bad debt losses.

Aging of Accounts Receivable

Estimates uncollectible accounts based on the age of each account receivable.

Receivables Turnover Ratio

Indicates how many times, on average, receivables are collected during the period.

Interest Revenue

The income earned from interest on notes receivable.

Credit Sales

Sales made to customers on credit, allowing them to pay for goods or services at a later date.

Write-Off

The removal of an account receivable from the books because it is deemed uncollectible.

Recovery

The collection of an account receivable that had previously been written off.

Promissory Note

A financial instrument containing a written promise to pay a specified amount of money at a fixed or determinable future date.

Interest Calculation

Interest (I) is calculated using the formula: I = Principal (P) × Interest Rate (R) × Time (T).

Factoring Receivables

Selling accounts receivable to another company to speed up cash collections.

Cash Collection Period

The number of days taken to collect accounts receivable.

Credit Terms

The terms under which credit sales are made, including the length of the credit period.