Ch9 Accounting for Receivables

What is an Account Receivable? An account receivable is a claim against a customer created by selling merchandise or services on credit. What is Accounts Receivable Turnover? The accounts receivable turnover is the relationship between net sales and accounts receivable, computed by dividing the net sales by the average net accounts receivable; it measures how frequently during the year the accounts receivable are being converted to cash. What is Aging the Receivables? Aging the receivables means analyzing the accounts receivable and classifying them into groups according to how old or past due they are. The older the account has gone uncollectible the higher the probability that it will not be collected. What is the Allowance Method? The allowance method is the method of accounting for uncollectible accounts that provides an expense for uncollectible receivables in advance of their write-off. What is Contra Asset?The contra asset is an asset offset against another asset. What is Direct Write-off Method? The direct write-off method is the method of accounting for uncollectible accounts that recognizes the expense only when accounts are judged to be worthless; it is a method preferred by small businesses. What is a Dishonored Note Receivable? A dishonored note receivable is a note that the maker fails to pay on the due date. What is Maturity Value? The maturity value is the amount that is due at the maturity or due date of a note. What is Note Receivable? The note receivable is a customer’s written document that contains the promise to pay an amount and possibly interest at an agreed-upon rate. What is Number of Days’ Sales in Receivables? The number of days’ sales in receivables is the relationship between sales and accounts receivable, computed by dividing the net accounts receivable at the end of the year by the average daily sales. What is a Promissory Note? The promissory note is a written and unconditional promise to pay a sum of money on demand or at a definite time. What is Receivables? Receivables is the name of the group of all money claims against other entities, including people, business firms, and other organizations. What is Uncollectible Accounts Expense? The uncollectible accounts expense is the operating expense incurred because of the failure to collect receivables. What are the Two Bases of Estimating the Allowance? The two bases or ways of estimating the allowance are: (1) percentage of sales, and (2) percentage of accounts receivable. What does Write-Off mean? Write off means to remove an account receivable that we feel it is worthless. What do we mean by Trade Receivables? Trade receivables are created by the sale of merchandise. Assume the Direct Write Off method is used: How do you write off an uncollectible account receivable? We write off the uncollectible account by debiting Bad Debts Expense and crediting Accounts Receivable. Assume the Allowance method is used: How do you write off an uncollectible account receivable? We write off the uncollectible account by debiting Allowance for Uncollectible Accounts and crediting Accounts Receivable. What is the formula for Computing Simple Interest? The formula is: I = P x R x T Where I = interest P = Principal R = Rate (which may be expressed as (1) fraction 10/100 (2) decimal .10 (3) percentage 10%, or (4) In words: “Ten per cent.” Ch1 Accounting in Action Ch2 Recording Process Ch3 Adjusting the Accounts Ch4 Completing the Accounting Cycle Ch5 Merchandising Operations Ch6 Inventories Ch7 Accounting Information Systems Ch8 Internal Control and Cash Ch9 Accounting for Receivables Ch10 PP&E, Natural Resources, and Intangible Assets Ch11 Current Liabilities and Payroll Ch12 Partnerships Ch13 Corporations Ch14 Corporations:Dividends, RE Ch15 Long Term Liabilities Ch16 Investment Ch17 Statement of Cash Flows Ch18 Financial Statement Analysis Plato and Accounting Price/Earnings Ratio Plant Assets Luca Pacioli and DaVinci The secrets of 'no-doze' prose: Mary Duffy's Sentence Openers

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