Accounting 101

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Ratio of the sum of cash plus short-term investments plus net current receivables, to total current liabilities. Tells whether the entity could pay all its current liabilities if they came due immediately. Also called the QUICK RATIO

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Acid-Test Ratio

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A way to estimate bad debts by analyzing individual accounts receivable according to the length of time they have been receivable from the customer. Also called the BALANCE-SHEET APPROACH

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Aging-of-Accounts Method

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A contra account, related to accounts receivable, that holds the estimated amount of collection losses. Also called ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS

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Allowance for Doubtful Accounts

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A contra account, related to accounts receivable, that holds the estimated amount of collection losses. Also called ALLOWANCE FOR DOUBLEFUL ACCOUNTS

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Allowance fo Uncollectible Accounts

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A method of recording collection losses of the basis of estimates instead of waiting to see which customers the company will not collect from

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Allowance Method

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Cost to the seller of extending credit. Arises from the failure to collect from credit customers. Also called DOUBTFUL-ACCOUNT EXPENSE or UNCOLLECTIBLE-ACCOUNT EXPENSE.

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Bad-Debt Expense

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A way to estimate bad debts by analyzing individual accounts receivable according to the length of time they have been receivable from the customer. Also called the AGING-of-ACCOUNTS METHOD

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Balance-Sheet Approach

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Issued by bankds, with an operation much like a credit card. Visa and MasterCard are the two main ones.

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Bankcards

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Ratio of average net accounts receivable to one day's sales. Tells how many days' sales it takes to collect the average level of receivables. Also called the DAYS' SALES IN RECEIVABLES

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Collection Period

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An account in the general ledger that summarizes related subsidiary accounts

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Control Account

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Ratio of average net accounts receivable to one day's sales. Tells how many days' sales it takes to collect the average level of receivables. Also called the COLLECTION PERIOD

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Days' Sales in Receivables

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The party to a credit transaction who makes a purchase and has a payable

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Debtor

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Failure of a note's maker to pay a note receivable at maturity. Also called DISHONOR OF A NOTE

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Default on a Note

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A mothod of accounting for uncollectible receivables, in which the company waits until the credit department decides that a customer's account receivable is uncollectible and then debits Uncollectible-account expense and credits the customer's Account receivable

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Direct Write-Off Method

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Selling a note receivable before its maturity date

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Discounting a Note Receivable

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Failure of a note's maker to pay a note receivable at maturity. Also called DEFAULT ON A NOTE

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Dishonor of a Note

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Cost to the seller of extending credit. Arises from the failture to collect from credit customers. Also called UNCOLLECTIBLE-ACCOUNT EXPENSE OR BAD-DEBT EXPENSE

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Doubtful-Account Expense

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The date when final payment of the note is due. Also called the MATURITY DATE

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Due Date

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A mothod of estimating uncollectible receivables that calculates uncollectible-account expense. Also called the PERCENT-OF-SALES METHOD

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Income-Statement Approach

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The revenue to the payee for loaning money; the expense to the debtor

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Interest

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The period of time during which interest is computed. It extends from the original date of the note to the maturity date. Also called the NOTE TERM, or simply TIME PERIOD

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Interest Period

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The percentage rate of interest specified by the note. Interest rates are almost always stated for a period of one year

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Interest Rate

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The date when final payment of the note is due. Also called the DUE DATE

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Maturity Date

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The sum of the principal plus interest due at maturity

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Maturity Value

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Net value that a company expects to collect of its receivables

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Net Realizable Value

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The period of time during which interest is computed. It extends from the original date of the note to the maturity date. Also called the INTEREST PERIOD

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Note Term

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A mothod of estimating uncollectible receivables that calculates uncollectible-account expense. Also called the INCOME-STATEMENT APPROACH

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Percent-of-Sales Method

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The amount loaned out by the payee and borrowed by the maker of the note

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Principal

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A written promise to pay a specified amount of money at a particular future date

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Promissory Note

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Ratio of the sum of cash plus hort-term investments plus net current receivables, to total current liabilities. Tells whether the entity could pay all its current liabilities if they came due immediately. Also call the ACID-TEST RATIO

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Quick Ratio

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Monetary claim against a business or an individual.

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Receivable

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Contains the details by individual customer that are summarized in the control account

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Subsidiary Ledger

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The period of time during which interest is computed. It extends from the original date of the note to the maturity date. Also called the NOTE TERM or INTEREST PERIOD

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Time Period

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Amounts to be collected from customers from sales made on credit. Also called ACCOUNTS RECEIVABLE

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Trade Receivables

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Cost to the seller of extending credit. Arises from the failure to collect from credit customers. Also called DOUBTFUL-ACCOUNT EXPENSE or BAD-DEBT EXPENSE

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Uncollectible-Account Expense