Hackett Accounting Chapter 9
accounts receivable turnover
A measure of the liquidity of accounts receivable, computed by dividing net credit sales by average net accounts receivable.
percent of sales method
A method of estimating uncollectible receivables that calculates bad debts expense based on a percentage of net credit sales. Income statement focus, does not affect allowance for doubtful accounts, only bad debt expense.
bad debts
Accounts of customers who do not pay what they have promised to pay; an expense of selling on credit; also called uncollectible accounts.
maturity date of a note
Date when a note's principal and interest are due.
realizable value
Expected proceeds from converting an asset into cash.
materiality constraint
Prescribes that accounting for items that significantly impact financial statement and any inferences from them adhere strictly to GAAP. An amount can be ignored if its effect on financial statements is unimportant to users' business decisions.
direct write-off method
Recording bad debt expense at the time we know the account is uncollectible
promissory note
a written promise to pay a specified amount of money on demand or at a definite time
accounts receivable
amounts due from customer for credit sales
factor
buyer of all or a portion of receivables of a company; done to raise money by converting receivables to cash
Allowance for Doubtful Accounts
contra-asset account containing the estimated uncollectible accounts receivable
Aging of Accounts Receivable Method
estimates uncollectible accounts based on the age of each account receivable. Balance sheet focus, affects allowance for doubtful accounts account.
factoring fee
fee charged to the seller of all or a portion of receivables of a company
pledging receivables
giving a third party legal rights to debts owed your business in order to provide assurance that borrowed money will be repaid
principal of a note
the original amount of a note; sometimes referred to as face amount of a note
payee of the note
the person or business to whom the amount of a note is payable
maker of the note
the person or business who signs a note and thus promises to make payment
allowance method
A method of accounting for bad debts that involves estimating uncollectible accounts at the end of each period, to match them against the revenues they helped produce.
percent of receivables method
A method of estimating uncollectible receivables by determining the balance of the Allowance for Bad Debts account based on a percentage of accounts receivable. Balance sheet focus, affects allowance for doubtful accounts account.
interest
A sum paid or charged for the use of money or for borrowing money, charged until its due date
matching (expense recognition) principle
requires expenses to be reported in the same accounting period as the sales they helped produce
