MGMT 200-- Chapter 5

allowance for uncollectible accounts

An allowance for doubtful accounts is a contra-asset account that reduces the total receivables reported to reflect only the accounts receivable expected to be collected. The allowance is established by recognizing a bad debt loss on the financial statements in the same accounting period when the associated sale is reported.

notes receivable

Notes receivable is an asset of a company, bank or other organization that holds a written promissory note from another party. For example, if a company lends one of its suppliers $10,000 and the supplier signs a written promise to repay the amount, the company will enter the amount in its asset account Notes Receivable. The supplier will also enter the amount in its liability account Notes Payable.

aging method

a more accurate method than assuming a single percentage uncollectible for all accounts is to consider the various ages of individual accounts receivable, using a higher percentage for "old" accounts than for "new" accounts

uncollectible amounts

also known as bad debts; customer accounts that we no longer consider collectable; debts that have no chance of being paid

percentage-of-receivables method

estimating uncollectible accounts based on the percentage of accounts receivable expected to be collected is know as _____. ex: The balance in Accounts Receivable on December 31, 2013 was $530,000. The company estimates that 6% of receivables are uncollectible.

contra revenue account

is a deduction from the gross revenue reported by a business, which results in net revenue, usually have a debit balance

allowance method

is a system that estimates uncollectible receivables and bad debts by reporting accounts receivable at its realizable value. In other words, it's a method that management uses to estimate the amount of cash credit customers will actually pay.

receivables turnover ratio

is an accounting measure used to measure how effective a company is in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

average collection period

is the average number of days between 1) the date that a credit sale is made, and 2) the date that the money is received from the customer

net realizable value (NRV)

is the estimated selling price in the ordinary course of business minus any cost to complete and to sell the goods. it is one of the amounts considered when determining the lower of cost or market for items in inventory

bad debt expense

is the portion of accounts receivable that became uncollectable during a given period. (future)

net revenues

refer to a companies total revenues less any amount for discounts, returns, and allowances

trade discounts

represent a reductions in the listed price of a product or service

accounts receivable

represent the amount of cash owed to a company by its customers from the sale of products or services on account

sales discount

represents a reduction, not in the selling price of a product or service, but in the amount to be paid by a credit customer if payment is made within a specific period of time. its a discount intended to provide incentive for quick payment.

net account receivable

the difference between total accounts receivable and the allowance for uncollectible accounts is referred to as ____.

credit sales

transfer products and services to a customer today while bearing the risk of collecting payment from that customer in the future

sales return

when a customer returns a product

sales allowance

when the customer does not return the product or service, but the seller reduces the customer's amount owed to provide at least a partial adjustment of the amount the customer owes

direct write-off method

when you write off bad debts only at the time they actually become uncollectible, unlike the allowances method which requires estimation of uncollectible accounts before they even occur