Accounting Ch 8 – Flashcards
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when a business sells goods or services to another party on account (on credit). A receivable is a monetary claim against a business or an individual.
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receivable occurs
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is the party to a credit transaction who is obligated to pay later.
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debtor
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represents the right to receive cash in the future from customers for goods or services performed. Generally collected within 30 to 60 days Reported as a current asset on the balance sheet
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Accounts receivable, also called trade receivables,
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usually have longer terms than accounts receivable.
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Notes receivable (promissory note)
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is the date on which a note receivable is due.
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maturity date
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arises from failure to collect from some customers who purchase on account.
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Bad debts expense
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of accounting for uncollectible receivables is primarily used by small, nonpublic companies.
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direct write-off method
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is based on the matching principle.
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allowance method
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called Allowance for Bad Debts reduces the Accounts Receivable to the net realizable value.
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A contra asset account
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is established for the estimated uncollectible accounts.
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An allowance
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computes bad debts expense as a percentage of net credit sales.
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percent-of-sales method
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computes bad debts expense as a percentage of accounts receivable.
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percent-of-receivables method
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is similar to the percent-of-receivables method.
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aging-of-receivables method
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Amount of interest = principal x interest rate x time
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Computing interest on a note
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the dishonored note and the unpaid interest are transferred to Accounts Receivable.
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dishonors a note
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is used to measure a company's ability to pay its current liabilities.
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acid-test ratio
