Accounting: Chapter 5

Trade Receivable

Another term used for accounts receivable

Allowance Method

Companies are required to estimate future uncollectible accounts and record those estimates in the current year.

Uncollectible accounts, bad debts

Customers' accounts that the company no longer consider collectible.

Net Realizable Value

The amount of cash the firm expects to collect.

Uncollectible Accounts Expense

The expense associated with the estimate of the amount of accounts receivable that may not be collected during the year.

Aging Method

Using a higher percentage for "old" accounts than for "new" accounts when estimating uncollectible accounts.

Credit Sales

When a business sells goods to a customer, and the customer promises to pay later.

Sales Return

When a customer returns a product for a refund.

Accounts receivable should be classified as a

current assets

A sales allowance ______ the amount owed by the customer for merchandise that is _____ by the customer.

decreases; retained

The primary disadvantage of offering discounts to customers is that they

reduce current period net revenue

Accounts receivable are classified as current assets because

they will be converted to cash within 1 year or the normal operating cycle.

Examples of receivables

Amounts owed by customers, amounts loaned and expected to be paid, and tax refund claims.

Credit sales typically include an informal credit arrangement requiring payment within _______ days.

30-60

Sales Discount

A cash discount representing a reduction in the amount to be paid by a credit customer if the customers pay within a specified period of time.

Receivables

A company's claim to the future collection of cash, other assets, or services.

Trade Discount

A reduction from the list price.