Bus 214: Chapter 5

days' sales outstanding (DSO) (pg 278)

365 divided by accounts receivable turnover. Indicates how many days' sales remain in accounts receivable awaiting collection. also called days' sales in receivables or the collection period

FOB (pg 261)

Acronym for "free on board"; used in quoting shipping terms

credit memo (pg 261)

a document issued to a credit customer for merchandise returned, authorizing a credit to the customer's. account receivable for the amount of the sale

direct write-off method (pg 272)

a method of accounting for bad debts in which the company waits until a customer's account receivable proves uncollectible and then debits uncollectible-account expense and credits the customer's account receivable

allowance method (pg 267)

a method of recording collection losses based on estimates of how much money the business will not collect from its credit customers

aging-of-receivables (pg 269)

a way to estimate bad debts by analyzing individual accounts receivable according to the length of time they have been receivable from the customer

contract (pg 258)

an agreement between two parties that creates enforceable rights or obligations

quick ratio (pg 278)

another name for acid-test ratio

bad-debt expense (pg 266)

another name for uncollectible-account expense

doubtful-account expense (pg 266)

another name for uncollectible-account expense

other comprehensive income (pg 256)

certain types of revenue, expenses, gains, and losses that are allowed to bypass the income statement. These items are reported in a separate statement or in a combined statement of net income and comprehensive income. At the end of the period, items of comprehensive income of that period are reported as accumulated other comprehensive income, a separate category of stockholders' equity

percent-of-sales method (pg 268)

computes uncollectible-account expense as a percentage of net credit sales. Also called the income-statement approach because it focuses on the amount of expense to be reported on the income statement

uncollectible-account expense (pg 226)

cost to the seller of extending credit. Arises from the failure to collect from credit customers. Also called doubtful-account expense or bad-debt expense

trading securities (pg 251)

debt or equity investments that are to be sold in the near future with the intent of generating profits on the sale

unrealized gain/ loss (pg 253)

gains and losses that occur on investments through fluctuations in market values, rather than through sales

revenue (pg 258)

inflows of resources to an entity that result from delivering goods or rendering services to customers

Receivables (pg 263)

monetary claims against a business or an individual, acquired mainly by selling goods or services and by lending money

accounts receivable turnover (pg 278)

net sales divided by average net accounts receivable

sales discount (pg 260)

percentage reduction of sales price by the seller as an incentive for early payment before the due date. A typical way to express sales discount is "2/10, n/30." This means the seller will grant a 2% discount if the invoice is paid within 10 days, and the entire amount is due within 30 days

acid-test ratio (pg 278)

ratio of the sum of cash plus short-term investments plus net current receivables to total current liabilities. Tells whether the entity can pay all its current liabilities if they come due immediately. Also called the quick ratio

held-to-maturity securities (pg 251)

securities in which the investor has the intent and ability to hold until a maturity date stated on the face of the security

available-for-sale-securities (pg 251)

securities that are not classified as held-to-maturity or trading securities

shipping terms (pg 261)

terms provided by the seller of merchandise that dictate the date on which title transfers to the buyer. A typical way to express shipping terms is through FOB terms. For example, "FOB destination" means title to the goods passes to the buyer when the goods are delivered and the buyer assumes control over them. "FOB shipping point" means title passes on the date the goods are shipped from the seller's warehouse

principal (pg 273)

the amount borrowed by a debtor and lent by a creditor

interest (pg 273)

the borrower's cost of renting money from a lender. Revenue for the lender and expense for the borrower

accumulated other comprehensive income (pg 256)

the cumulative amount of items reported as other comprehensive income; a separate category in the stockholders' equity section of the balance sheet

maturity date (pg 273)

the date on which the debtor must pay the note

allowance for uncollectible accounts (pg 267)

the estimated amount of collection losses on accounts receivable. Another name for allowance for doubtful accounts

allowance for doubtful accounts (pg 267)

the estimated amount of collection losses on accounts receivable. another name for allowance for uncollectible accounts

term (pg 273)

the length of time from inception to maturity for a note

creditor (pg 273)

the party to whom money is owed

debtor (pg 273)

the party who owes money

revenue recognition (pg 258)

the process of recording revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services

maturity value (pg 273)

the sum of principle and interest on the note