ACCT 2300: Receivables, Bad Debts, Merchandising, and Inventory

Vocabulary flashcards covering key definitions, normal balances, accounting entries, and costing rules for Receivables, Bad Debts, Merchandising, and Inventory from ACCT 2300.

Sales Return

A transaction where a customer returns damaged or unsatisfactory goods back to the seller company.

Sales Returns and Allowances

A contra-revenue account with a normal debit balance used to record goods returned by customers or price reductions granted due to damaged goods.

Sales Discount

A reduction in price offered by a seller to customers as an incentive for early payment of an invoice.

Allowance for Uncollectible Accounts

A contra-asset account with a normal credit balance used to reduce gross Accounts Receivable to its net realizable value.

Net Realizable Value of Accounts Receivable

The estimated amount of cash expected to be collected from receivables, calculated as Accounts Receivable minus the Allowance for Uncollectible Accounts.

Interest Accrual Entry for Notes Receivable

The adjusting entry made at period-end to accrue earned interest, consisting of a debit to Interest Receivable ($\text{IREC}$) and a credit to Interest Revenue ($\text{IR}$ or $\text{IREV}$).

Bad Debt Expense Adjusting Entry (Allowance Method)

The end-of-period entry to recognize estimated uncollectible accounts by debiting Bad Debt Expense ($\text{BD}$) and crediting Allowance for Doubtful Accounts ($\text{ADA}$), which decreases total assets and net income.

Write-Off Entry (Allowance Method)

The journal entry to remove an uncollectible account by debiting Allowance for Doubtful Accounts ($\text{ADA}$) and crediting Accounts Receivable ($\text{AR}$), resulting in no change to total assets, total liabilities, or total equity.

Aging Schedule

A schedule that categorizes customer accounts receivable balances by the length of time invoices have been outstanding to estimate the percentage of uncollectible accounts.

Allowance Method

The accounting method required by financial reporting standards when bad debts are material, properly matching bad debt expense to the period of the corresponding sales.

First-In, First-Out (FIFO)

An inventory cost flow method assuming that the earliest acquired goods are sold first, leaving the most recent purchase costs in ending inventory.

Last-In, First-Out (LIFO)

An inventory cost flow method assuming that the most recently purchased goods are sold first, leaving the oldest costs in ending inventory.

Weighted-Average Method

A periodic inventory costing method that determines unit cost by dividing the total cost of goods available for sale by the total units available for sale.

Cost of Goods Sold (Periodic)

The cost of inventory sold during a period, computed as Beginning Inventory plus Net Purchases plus Transportation-In minus Ending Inventory.

FOB Shipping Point

Freight terms where ownership title transfers from seller to buyer when goods are shipped, making the buyer responsible for freight costs and requiring the buyer to record the purchase on the shipment date.

FOB Destination

Freight terms where ownership title transfers when goods arrive at the buyer's premises, making the seller responsible for shipping costs and recognizing revenue only upon delivery.

Credit Card Discount Expense

The service fee charged by a bank or credit card processor (such as $4\%$) debited by the seller upon deposit of credit card sales receipts.

Lower of Cost or Market (LCM) Rule

The accounting principle requiring inventory whose current replacement cost falls below historical cost to be written down by debiting Cost of Goods Sold ($\text{COGS}$) and crediting Inventory.

Inventory Overstatement Effects

A financial statement error where an overstated ending inventory causes Cost of Goods Sold (expenses) to be understated, resulting in overstated Net Income, Assets, and Equity, while Revenue and Liabilities remain correct.

Net Purchases

The net cost of inventory purchases, calculated as Purchases minus Purchase Returns and Allowances plus Transportation-In.

Effects of Rising Prices on Inventory Methods

During periods of rising prices, FIFO yields the highest Ending Inventory, Net Income, and Taxes, while LIFO yields the highest Cost of Goods Sold ($\text{COGS}$).

Effects of Declining Prices on Inventory Methods

During periods of declining prices, LIFO yields the highest Ending Inventory, Net Income, and Taxes, while FIFO yields the highest Cost of Goods Sold ($\text{COGS}$).