Accounting: Chapter 7: Account/Notes Receivable

direct write-off method

method of accounting for bad debts; records the loss from an uncollectible account receivable when it it is determined to be uncollectible

allowance method

procedure that estimates and matches bad debts expense with its sales for the period and/or reports accounts receivable at estimated realizable value

matching (expense recognition) principle

requires expenses to be reported in the same accounting period as the sales they helped produce

materiality constraint

states that an amount can be ignored if its effect on the financial statements is unimportant to users' business decisions

interest

the charge for using the money until its due date

maturity date of a note

the day the note (principal and interest) must be repaid

promissory note

a written promise to pay a specified amount of money, usually with interest, either on demand or at a definite future date.

bad debts

accounts of customers that are uncollectible accounts

principal of a note

amount that the signer of a note agrees to pay back when it matures, not including interest

accounts receivable

amounts due from customers for credit sales

allowance for doubtful accounts

contra asset account with a balance approximating uncollectible accounts receivable

payee of the note

entity to whom a note is made payable

maker of the note

entity who signs a note and promises to it at maturity

realizable value

the expected proceeds from converting on asset into cash