Receivables and Inventory Cost Flow

These flashcards cover key terms and concepts related to accounting for receivables and inventory cost flow methods.

Account Receivable

A company's right to collect cash in the future from customers who buy on credit.

Notes Receivable

Receivables that are evidenced by a note which specifies the maturity date and interest rate.

Net Realizable Value (NRV)

The estimated amount a company expects to collect from its accounts receivable.

Allowance for Doubtful Accounts

An estimate of the amount of uncollectible receivables that a company anticipates.

Allowance Method

An accounting method that requires estimation of uncollectible accounts to report accounts receivable at net realizable value.

Bad Debts Expense

An expense recognized to reflect the estimated amount of accounts receivable that will not be collected.

Maturity Date

The date on which the maker of a note must repay the principal and make the final interest payment.

Principal

The amount of money loaned by the payee to the maker of a promissory note.

Interest

The economic benefit earned by the payee for loaning money, typically calculated as a percentage of the principal.

Promissory Note

A legal document that outlines the terms of a loan, including the principal, interest, and maturity date.

Credit Agreement

A legally binding agreement between a borrower and lender that outlines the terms of credit.

FIFO (First In, First Out)

An inventory cost flow method where the oldest inventory costs are assigned to cost of goods sold.

LIFO (Last In, First Out)

An inventory cost flow method where the most recent inventory costs are assigned to cost of goods sold.

Weighted Average Cost Flow

An inventory cost flow method that calculates cost of goods sold based on the average cost of inventory.

Liquidity

The ability of an asset to be converted into cash quickly without loss of value.

Matching Concept

An accounting principle that expenses should be recognized in the same period as the revenues they help to generate.

Credit Card Sales

Sales transactions where payment is made by a third-party credit card company on behalf of customers.