Chapter 5- Receivables and Sales – Flashcards
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Accounts Receivables
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The amount of cash owed to the company by it's customers from the sale of products or services on account
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Aging method
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Using a higher percentage for "old" accounts than for "new" accounts when estimating uncollectible accounts
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Allowance for uncollectible accounts
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Contra asset account representing the amount of accounts receivable that we do not expect to collect
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Allowance method
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Recording an adjustment at the end of each period to allow for the possibility of future uncollectible accounts. The adjustment has the effects of reducing assets and increasing expenses
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Average collection period
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Approximate number of days the average accounts receivable balance is outstanding. It equals 365 divided by the receivables turnover ratio
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Bad debt expense
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The amount of the adjustment to the allowance for uncollectible accounts, representing the cost of estimated future bad debts charged to the current period
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Contra revenue account
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An account with a balance that is opposite, or "contra," to that of its related revenue account
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Credit sales
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Transfer of products and services to a customer today while bearing the risk of collecting payment from that customer in the future. AKA sales on account or services on account
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Direct write-off method
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Recording bad debt expense at the time we know the account is uncollectible
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Net accounts receivable
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The difference between total accounts receivable and the allowance for uncollectible accounts
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Net realizable value
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The amount of cash the firm expects to collect
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Net revenues
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A company's total revenues less any discounts, returns and allowances
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Notes receivable
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Formal credit arrangements evidenced by a written debt instrument, or note
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Percentage-of-receivables method
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Method of estimating uncollectible accounts based on the percentage of accounts receivable expected not to be collected
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Receivables turnover ratio
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Number of times during a year that the average accounts receivable balance is collected (or "turned over"). It equals net credit sales divided by average accounts receivable
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Sales allowance
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Deller reduces the customer's balance owed or provides at least a partial refund because of some deficiency in the company's product or service
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Sales discount
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Reduction int he amount to be paid by a credit customer if payment on account is made within a specified period of time
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Sales return
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Customer returns a product
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Trade discount
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Reduction in the listed price of a product or service
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Uncollectible accounts
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Customers' accounts that are no longer considered collectible
