Accounts Receivable
when a company allows a customer to "buy now and pay later
Notes Receivable
notes specifies maturity date, interest rate and other credit terms. Notes mean there is longer time to pay and there is a larger amount
Interest Bearing Note
have to account for the interest on the balance.
Net realizable value
represents the amount of receivables a company estimates it will actually collect. It is the face value less an allowance for doubtful accounts
Allowance for Doubtful Accounts
represents a company's estimate of the amount of noncollectable receivables. Contra-ASSET account.
Allowance method of accounting for debt
reporting accounts receivable in the financial statement at net realizable value
Earned on Account
debit accounts receivable and credit revenue
Bad Debt Expense
recognized at the year end of adjusted entry. Debit this and credit allowance for doubtful accounts.
Writing off uncollectible accounts receivable
debit allowance for doubtful accounts, credit accounts receivable.
Reinstate
the process of reversing a previous write off
Income Statement Method
method of estimating uncollectible accounts expense. Use a number off the income statement to compute bad debt expense.
How to do Income Statement Method
Multiply the service revenue by percentage of uncollectible accounts.
Percent of Receivables Method
method of estimating uncollectible accounts by taking a percent of outstanding receivables balance. The percent is frequently based on a combination of factors such as historical experience, conditions of the economy and company's credit policy
Aging of Accounts Receivables
classifying each account receivables by number of days it has been outstanding.
Purpose of the Aging Schedule
to develop a more accurate estimate of uncollectible accounts.
Balance Sheet Method
method of estimating uncollectible accounts by computing the ending balance from the balance sheet and letting in the expenses fall into place
Direct Write off method
accounting practice of recognizing uncollectible accounts on expense when accounts are determined to be uncollectible regardless of the period in which the related sales occurred
Con of Direct Write Off Method
matching doesn't work very well with it
Promissory Note
a legal document representing a credit agreement between a lender and a borrower. Specifies technical details such as the maker, payee, interest rate, maturity date, payment terms and any collateral
payee
the partner collecting notes
principal
the amount of cash that is actually borrowed, to be repaid in the future with interest
interest
Fee paid for the use of funds, represents an expense to the borrower and revenue to the lender
Maturity date
the date that a liability is due to be settled, the day the borrower is expected to repay debt
Collecteral
assets pledged as security for a loan
Interest Payable
a contra-liability account for interest bearing notes
Discount Note
a non-interest bearing note. The interest is being viewed at the front end instead of the back- similar to a bond issued at a discount
Discount on Notes Payable
the contra liability account for non-interest bearing (discount) notes
Accrued Interest
interest of revenue or expense that is recognized before cash has been exchanged
Adjusting Entry
entry that updates account balances prior to preparing financial statements
A/R Turnover Ratio
Sales/Accounts Receivable. Financial ratio that measures how fast A/R are collected in cash. Computed by dividing sales by accounts receivable.
Operating Cycle
the average time it takes a business to convert inventory to accounts receivable plus the time it takes to convert this to cash.
Estimating Uncollectible Expense and Balance sheet
Debit uncollectible accounts expense and credit allowance for doubtful accounts.