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