Accounting Fundamentals: Accounts Receivable

Accounts Receivable

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

Sales Return

merchandise returned by a buyer to the seller/producer, oftem 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

Sales transactions can be:

Cash sales or sales on account

What information do sales order include?

Company name and address, invoice number, unit price, description , payment terms, and payment due date.

What are some examples of a subsidiary ledger?

Accounts receivable subsidiary ledger, fixed assets subsidiary ledger, accounts a payable subsidiary ledger or inventory subsidiary ledger.

When returning a product bought on credit, the credit side is recorded as:

Accounts receivable

Processing uncollectible accounts can be recorded using the:

Allowance approach and direct write-off method.

Schedule of accounts receivable is used for:

Bad debt calculations and audit examination

What is the normal balance for accounts receivable?

Debit side

What information do invoices include?

Individual prices, sales tax, total cost, shipping and terms of purchase

What information do customer files include?

Name and address of customer, invoice amount, credit limit, balance and payments

When returning a product that was bought on credit, the debit side is recorded as:

Sales return and allowances

Subsidiary Ledger

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

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

payments rules imposed by suppliers to their customers

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