Ch.6 ACCT: Receivables and inventories

Recievables

includes money claims against other entities, including people, companies, and other organizations

Accounts Receivable

normally collected within a short period such as 30 or 60 days

Notes Receivable

amounts that customers owe for which a formal, written instrument of credit is issued

computation of interest

interest=face amount x interest rate x (Term/360 days)

Maturity Value

face value + interest

T or F: accounts receivable are normally collected within 30 or 60 days

True

bad debit expense

uncollectible accounts expense or doubtful accounts expense

Allowance Method

A method of accounting for bad debts that involves estimating uncollectible accounts at the end of each period.

Allowance for Doubtful Accounts

contra-asset account containing the estimated uncollectible accounts receivable

Net Realizable Value (NRV) calculation

Accounts Receivable - Allowance for Doubtful Accounts

Ar the end of period, the allowance for a doubtful account will normally have a ______ . This is because the allowance for doubtful accounts is based upon ________.

balance; estimate

Aging of Receivables

assumption that the longer the accounts receivable are outstanding, the less likely they are to be collected

merchandise inventory

The amount of goods on hand for sale to customers

what types of inventory fall under manufacturing inventories?

materials, work-in-process, and finished goods

Materials Inventory

raw inputs

work-in-process inventory

unfinished goods

Finished Goods Inventory

Completed products ready for sale.

specific identification inventory cost flow method

the unit sold is identified with a specific purchase

irst-in, first-out (FIFO) inventory cost flow method

first units purchased assumed to be sold, ending inventory is made up of most recent purchases

last-in, first-out (LIFO) inventory cost flow method

the last units purchased are assumed to be sold, ending inventory is made up of the first units purchased

the weighed average cost inventory cost flow method

the cost units sold and in ending inventory is an avg. of purchase costs

lower-of-cost-or-market (LCM) method

A method of valuing inventory that reports the inventory at the lower of its cost or current market value (replacement cost).

net realizable value

Estimated Selling Price − Selling Expenses

In inflationary times, ______ gives higher profits and more realistic inventory values; _______ gives lower taxes (lower profit). Weighted average is the compromise.

FIFO; LIFO

the write down hits cost of goods sold in the period it occurs, this _______ gross profit

reduces

"apply the lower of costs"

apply the value with lower quantity