Term
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Definition
| amounts customers owe on account |
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Term
| aging the accounts receivable |
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Definition
| a schedule of customer balances classified by the length of time they have been unpaid |
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Term
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Definition
| a method of accounting for bad debts that involves estimating uncollectible accounts at the end of each period |
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Term
| average collection period |
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Definition
| the average amount of time that a receivable is outstanding, calculated by dividing 365 days by the receivables turnover ratio |
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Term
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Definition
| an expense account to record losses from extending credit |
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Term
| cash (net) realizable value |
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Definition
| the net amount a company expects to receiver in cash from receivables |
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Term
| concentration of credit risk |
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Definition
| the threat of nonpayment from a single large customer or class of customers that could adversely affect the financial health of the company |
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Term
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Definition
| a method of accounting for bad debts that involves expensing receivable accounts at the time receivables from a particular company are determined to be uncollectible |
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Term
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Definition
| a note that is not paid in full at maturity |
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Term
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Definition
| a finance company or bank that buys receivables from businesses for a fee and then collects the payments directly from the customers |
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Term
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Definition
| the party in a promissory note who is making the promise to pay |
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Term
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Definition
| claims for which formal instruments of credit are issued as evidence of the debt |
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Term
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Definition
| the party to whom payment of a promissory note is to be made |
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Term
| percentage of receivables basis |
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Definition
| a method of estimating the amount of bad debt expense whereby management establishes a percentage relationship between the amount of receivables and the expected losses from uncollectible accounts |
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Term
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Definition
| A written promise to pay a specified amount of money on demand or at a definite time |
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Term
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Definition
| amounts due from individuals and companies that are expected to be collected in cash |
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Term
| receivables turnover ratio |
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Definition
| a measure of the liquidity of receivables, computed by dividing net credit sales by average net receivables |
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Term
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Definition
| notes and accounts receivable that result from sales transactions. |
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Term
| identify the different types of receivables. |
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Definition
| receivables are frequently classified as accounts, notes, and other. accounts receivable represent claims that are evidenced by formal instruments of credit. Other receivables include nontrade receivables such as interest receivable, loans to company officers, advances to employees, and income taxes refundable |
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Term
| explain how accounts receivable are recognized in the accounts |
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Definition
| accounts receivable are recorded at invoice price. They are reduced by sales returns and allowances. Cash discounts reduce the amount received on accounts receivable |
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Term
| describe the methods used to account for bad debts |
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Definition
| the two methods of accounting for uncollectible accounts are the allowance method and the direct write-off method. Under the allowance method, companies estimate uncollectible accounts as a percentage of receivables. It emphasizes the cash realizable value of the accounts receivable. An aging schedule is frequently used with this approach |
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Term
| compute the interest on notes receivable |
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Definition
| the formula for computing interest is: face value x interest rate x time. |
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Term
| describe the entries to record the dispositions of notes receivable |
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Definition
| notes can be held to maturity, at which time the borrower (maker) pays the face value plus accrued interest and the payee removes the note from the accounts. In mny cases, however, similar to accounts receivable, the holder of the note speeds up the conversion by selling the receivable to another party. In some situations, the maker of the note dishonors the note (defaults), and the note is written off |
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Term
| explain the statement presentation of receivables |
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Definition
| companies sould identify each major type of receivable in the balance sheet or in the notes to the financial statements. Short term receivables are considered current assets. Companies report the gross amount of receivables and allowance for doubtful accounts. They report bad debts and service charge expenses in the income statement as operating (selling) expenses, and interest revenue as other revenues and gains in the nonoperating section of the statement. |
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Term
| describe the principles of sound accounts receivable management |
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Definition
| to properly manage receivables, management must (a) determine to whom to extend credit, (b) establish a payment period, (c) monitor collections, (d) evaluate the liquidity of receivables, and (e) accelerate cash receipts from receivables when necessary |
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Term
| identify ratios to analyze a company's receivables |
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Definition
| the receivables turnover ratio and the average collection period both are useful in analyzing management's effectiveness in managing receivables. The accounts receivable aging schedule also provides useful information |
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