Accounts receivable:
An asset created by selling products or services on credit. Amounts due from customers for credit sales.
Accounts receivable method:
A method of estimating bad debts using balance sheet relations. Also known as Balance Sheet method.
Accounts receivable turnover:
A measure of both the quality and liquidity of accounts receivable; it indicates how often, on average, receivables are received and collected during the period; computed by dividing credit sales (or net sales) by the average accounts receivable balance.
Aging of accounts receivable:
A process of classifying accounts receivable in terms of how long they have been outstanding for the purpose of estimating the amount of uncollectible accounts.
Allowance for Doubtful Accounts:
A contra asset account with a balance equal to the estimated amount of accounts receivable that will be uncollectible; also called the Allowance for Uncollectible Accounts.
Allowance method of accounting for bad debts:
An accounting procedure that (1) estimates and reports bad debt expense from credit sales during the period of the sales, and (2) reports accounts receivable as the amount of cash proceeds that is expected from their collection (their estimated realizable value).
Bad debts:
The accounts of customers who do not pay what they have promised to pay; the amount is an expense of selling on credit; also called uncollectible accounts.
Balance sheet method:
See Accounts receivable method.
Contingent liability:
An obligation to make a future payment if, and only if, an uncertain future event actually occurs. (Chapter 10) A potential liability that depends on a future event arising out of a past transaction; is not an existing liability. (Chapter 13)
Days’ sales in receivables:
See Days sales uncollected.
Days’ sales uncollected:
A measure of the liquidity of receivables computed by taking the current balance of receivables and dividing by the credit (or net) sales over the year just completed, and then multiplying by 365 (the number of days in a year); also called days’ sales in receivables.
Direct write-off method:
A method of accounting for bad debts that records the loss from an uncollectible account receivable at the time it is determined to be uncollectible; no attempt is made to estimate uncollectible accounts or bad debt expense.
Dishonoring a note:
When a note’s maker is unable or refuses to pay at maturity.
Honouring a Note Receivable:
When the maker of the note pays the note in full at maturity.
Income statement method:
See Percent of sales method.
Interest:
The charge for using (not paying) money until a later date.
Maker of a note:
One who signs a note and promises to pay it at maturity.
Maturity date of a note:
The date on which a note and any interest are due and payable.
Payee of a note:
The one to whom a promissory note is made payable.
Percent of accounts receivable method:
A method of estimating bad debts which assumes a percent of outstanding receivables is uncollectible.
Percent of sales method:
Uses income statement relations to estimate bad debits. Also known as the Income Statement.
Period of a note:
The time from the date of the note top its maturity date or due date.
Principal of a note:
The amount that the signer of a promissory note agrees to pay back when it matures, not including the interest.
Promissory Note:
An unconditional written promise to pay a definite sum of money on demand or on a defined future date(s); also called note receivable.
Realizable value:
The expected proceeds from converting assets into cash.
