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