Accounting Exam 3

Front 1

Acid Test ratio

Back 1

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

Front 2

Aging of accounts method

Back 2

a way to estimate bad debts by analyzing individual accounts receivable according to the length of time they have been receivable from the customer.

Front 3

Allowance for doubtful account

Back 3

A contra account, related to accounts receivable, that holds the estimated amount of collection losses

Front 4

Allowance method

Back 4

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

Front 5

Doubtful Account expense

Back 5

Cost to the seller of extending credit arises from the failure to collect from credit customers.

Front 6

Collection period

Back 6

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.

Front 7

Creditor

Back 7

the party to a credit transaction who sells goods or a service and obtains a receivable

Front 8

Debtor

Back 8

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

Front 9

default on a note

Back 9

failure of a note's maker to pay a note receivable at maturity

Front 10

direct write off method

Back 10

a method of accounting for uncollectable 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 cuts'er's account receivable

Front 11

discounting a note receivable

Back 11

selling a note receivable before its maturity date

Front 12

due date

Back 12

the date when final paymet of the note is due

Front 13

income statement approach

Back 13

a method of estimating uncollectible receivables that calculates uncollectible account expense also called the percent of sales method

Front 14

interest

Back 14

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

Front 15

interest period

Back 15

the period of time during which interest is computed. It extends from the original date of the note to the maturity date.

Front 16

Interest Rate

Back 16

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

Front 17

Maker of a note

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the person or business that signs the note and promiese to pay the amount required by the note agreement; the debtor

Front 18

Maturity date

Back 18

the date when final payment of the note is due also called the due tate

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maturity value

Back 19

the sum of the principal plus interest due at maturity

Front 20

Note Term

Back 20

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

Front 21

Payee of a note

Back 21

The person or business to whom the maker of a note promises future payment; the creditor

Front 22

Percent of sales method

Back 22

a method of estimating uncollectiblke receivables that aclculates uncollectable account expense also called the income statement approach

Front 23

Princioal

Back 23

the amount loaned out by the apyee and borrowed by the maker of the note

Front 24

promissory note

Back 24

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

Front 25

receivables

Back 25

monetary claims against a business or an individual

Front 26

Accelerrated depreciation method

Back 26

A depreciation method that writes off more of the asset's cost near the start of its useful life than the straight line method does.

Front 27

Amortization

Back 27

systematic reduction of the asset's carrying value on the books. Expense that applies to intangibles in the same way depreciation applies to plant assets and depletion to natural rescources.

Front 28

Brand Names

Back 28

Assets that represent distinctive identifications of a product or service

Front 29

capital expenditure

Back 29

Expenditure that increases the capacity or efficiency of an asset or extends its useful life. Capital expenditures are debited to an asset account

Front 30

Copyright

Back 30

Exclusive right to reproduce and sell a book, musical composition, film, other work of art, or computer program, issued by the federal government, copyrights extend 70 years beyond the author's life

Front 31

Depletion expense

Back 31

Portion of a natural rescource;s cost used up in a particular period. Computed in the same way as units of production depreciation.

Front 32

Depreciable cost

Back 32

The cost of a plant asset minus its estimated residual value

Front 33

Double Declining Balance Method

Back 33

An accelerated depreciation method that computes annual depreciation by multifplying the asset's decreasing book value by a constant percent that is two times the straight line rate.

Front 34

Estimated residual value

Back 34

expected cash value of an asset at the end of its useful life also called savlage value

Front 35

Estimated useful life

Back 35

Length of the service period expected from an asset. May be expressed in years, units of output, miles, or another measure.

Front 36

Extraordinayr repair

Back 36

Repair work that generates a capital expenditure

Front 37

Franchise

Back 37

Privileges granted by a private business or a government to sell a product or service under specified conditions.

Front 38

Goodwill

Back 38

Excess of the cost of acquired company over the sum of the market values of its net assets (assets minus liabilities).

Front 39

Intangibles

Back 39

Assets with no physical form. Valuable because of the special rights they carry. Examples are patents and copyrights.

Front 40

Licenses

Back 40

Privileges granted by a private business or a government to sel a product or service under specified conditions.

Front 41

Ordinary Repair

Back 41

Repair work that is debited to an expense account

Front 42

Patent

Back 42

A federal government grant giving the holder the exclusive right to produce and sell an invention for 20 years

Front 43

Plant Assets

Back 43

long lived tangible asstets, such as land, buildings, and equipment used to operate a business.

Front 44

Salvage value

Back 44

expected cash value of an asset at the end of its uesful life.

Front 45

Straight line depreciation method

Back 45

depreciation method in which an equal amount of depreciation expense is assigned to each year of asset use.

Front 46

trademarks

Back 46

assets that represent distinctive identifications f a product or service

Front 47

trade names

Back 47

assets that represent distinctive identifications of a product or service

Front 48

Units of production depreciation method

Back 48

Depreciation method by which a fixed amount of depreciation is assigned to each unit of output produced by an asset.