Accounting Fundamentals: Accounts Receivable

Sales Return

merchandise returned by a buyer to the seller/producer, often a result of damaged or defective goods

Allowance Approach

method of estimating future uncollectible accounts receivable and using a contra asset account for reporting purposes

Allowances

money set aside in the expectation of expenses which will occur within a future time period

Collections Team

team which examines a schedule to determine which invoices are overdue and collects outstanding sums on accounts

Direct Write-Off Approach

the recognition of an unpaid customer account in which accounts receivable is credited; bad debt expense is debited

Cash Sale

when a customer pays for a good at the time it is received or a service when it is rendered

Customer File

a means of tracking all invoices and payments from customers

Control Account

account in the general ledger which contains the grand totals of individual subsidiary ledger or journal transactions

Contra Asset

asset account which has a normal credit balance instead of a debit balance

Sales Invoice

bill to the customer after the transfer of goods or the completion of services which represents a financial transaction between the buyer and is usually payable at a later date

Bad Debt Calculation

calculation to determine the amount needed, usually in percent form, to update the balance in the allowance for doubtful accounts

Operating Activities

cash flow generated from goods transferred and services completed in the course of doing business

Investing Activities

cash flow generated from investments in financial markets or long-term capital assets

Financing Activities

cash flow-resulting transactions with creditors or investors which are used to fund the activities of the business

Sale on Account

customer receives good or service and promises to pay at a later date

Sales Order

document which confirms a purchase of goods and services for the customer

Unbalanced Sheet

financial statement in which the sum of the balances in the asset accounts does not equal the sum of the balances in the liability and equity accounts

Cash Flow Statement

financial statement which shows how balance sheet and income statement changes affect the flow of cash

Terms of Payment

payment rules imposed by suppliers to their customers

Accounts Receivable

represents the amount which customers owe to a company due to purchasing goods or services

Balance Sheet

used by lenders, investors and creditors to estimate the liquidity of a business, also known as the statement of financial position; the balances in asset accounts should always equal the sum of balances in the liability and owner's equity accounts

Audit Examination

used in year-end testing procedures to check the accuracy of the accounts receivable balance

Subsidiary Ledger

used to track transactions found in one type of account in detail