Term
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Definition
| face value less (minus) an allowance for doubtful accounts. |
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Term
Allowance for Doubtful Accounts (unpaid)
pg. 172 |
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Definition
| Represents a company's estimate of the amount of noncollectable (unpaid) receivables. |
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Term
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Definition
Way of charging bad debt expense when an account receivable is actually deemed uncollectible. Thus, at the date it is certain that the customer will not be able to pay (in the most extreme instance, bankruptcy), the entry is to debit bad debt expense and credit accounts receivable. The advantage of this method is that it is based on fact rather than estimates.
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Term
Direct Write Off Method
(Yes & No's) |
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Definition
1. Is not accepted for financial reporting purposes because it fails to match bad debt expense against sales in the year of sale and does not show the realizable value of accounts receivable.
2. It is the only method allowed for tax purposes (except for small banks and specified types of financial organizations). |
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Term
| Net Realizable Value Calculation |
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Definition
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Accounts receivable- Allowance for doubtful accounts |
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Term
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Definition
The person responsible for making payments on the due date.
Also maybe be called the borrower or debtor. |
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Term
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Definition
1.The person to whom the note is made payable.
2. May also be called the creditor or lender.
3. Loans money to the maker and expects the return of the principal and the interest due. |
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Term
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Definition
The amount that will be received at the time a security is redeemed at its maturity. For most securities, maturity value equals par value.
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Term
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Definition
| The amount of money loaned by the payee to the maker of the notes. |
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Term
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Definition
The amount of interest due.
Example :
(.06x $15,000= $9,000) |
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Term
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Definition
To calculate interest one must multiply the interest rate by the note.
6 percent of a $15,000principal amount would be demonstrated as followed.
(.06 X $15,000= $9,000) |
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Term
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Definition
| The date on which the maker must repay the principal and make the final interest payment to the payee. |
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Term
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Definition
| Assets belonging to the maker that are assigned as security to ensure that the principal and interest will be paid when due. |
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Term
| Allowance Method of accounting for uncollectible accounts |
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Definition
Reporting accounts receivable in the financial statements at net realizable value.
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Term
| Uncollectible Accounts Expense |
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Definition
| Recognized in a year-end adjusting entry. |
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Term
| Financial Statement for 2010 Example |
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Definition
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Term
| Pamlico Inc. began operations on January 1, 2011. During 2011, it earned $ 400,000 of revenue on account. The company collected $ 370,000 of accounts receivable. At the end of the year, Pamlico estimates uncollectible accounts expense will be 1 percent of sales. Based on this information alone, what is the net realizable value of accounts receivable as of December 31, 2011? |
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Definition
Answer:
Answer Accounts receivable at year end are $ 30,000 ($ 400,000 sales on account 2 $ 370,000 collection of receivables). The amount in the allowance for doubtful accounts would be $ 4,000 ($ 400,000 credit sales 3 0.01). The net realizable value of accounts receivable is therefore $ 26,000 ($ 30,000 2 $ 4,000). |
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Term
| Maher Company had beginning balances in Accounts Receivable and Allowance for Doubtful Accounts of $ 24,200 and $ 2,000, respectively. During the accounting period Maher earned $ 230,000 of revenue on account and collected $ 232,500 of cash from receivables. The company also wrote off $ 1,950 of uncollectible accounts during the period. Maher estimates uncollectible accounts expense will be 1 percent of credit sales. Based on this information, what is the net realizable value of receivables at the end of the period? |
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Definition
Answer:
Answer The balance in the Accounts Receivable account is $ 19,750 ($ 24,200 1 $ 230,000 2 $ 232,500 2 $ 1,950). The amount of uncollectible accounts expense for the period is $ 2,300 ($ 230,000 3 0.01). The balance in the Allowance for Doubtful Accounts is $ 2,350 ($ 2,000 2 $ 1,950 1 $ 2,300). The net realizable value of receivables is therefore $ 17,400 ($ 19,750 2 $ 2,350). |
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Term
| On October 1, 2010, Mei Company accepted a promissory note for a loan it made to the Asia Pacific Company. The note had a $ 24,000 principal amount, a four- month term, and an annual interest rate of 4 percent. Determine the amount of interest revenue and the cash inflow from operating activities Mei will report in its 2010 and 2011 finan-cial statements. |
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Definition
Answer:
The computation of accrued interest revenue is shown below. The interest rate is stated in annual terms even though the term of the note is only four months. Interest rates are commonly expressed as an annual percentage regardless of the term of the note. The time outstanding in the following formulas is therefore expressed as a fraction of a year. Mei charged annual interest of 4 percent, but the note was out-standing for only 3/ 12 of a year in 2010 and 1/ 12 of a year in 2011. |
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Term
| Accounts receivable turnover ratio |
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Definition
Sales
Accounts Receivable
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Term
| Average Collection Period |
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Definition
Average # of days to collect accounts receivable
365
Accounts receivable turnover ratio
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Term
| Randolph Corporation had sales for the year of $ 535,333 and an accounts receivable bal-ance at year end of $ 22,000. Determine Randolph’s average number of days to collect accounts receivable. |
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Definition
Answer:
The accounts receivable turnover is 24.33 ($ 535,333 4 $ 22,000) times per year. The average number of days to collect accounts receivable is 15 ( 365 4 24.33). |
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