Acct 203 - Chap 7 & Chap 8

Front 1

current (short-term) asset

Back 1

Asset that will be converted to cash or consumed within one year or an operating cycle, whichever is longer. pp. 357, 443

Front 2

operating cycle

Back 2

Process of converting cash into inventory, inventory into receivables, and receivables back to cash; its length can be measured in days using financial statement data. pp. 357, 407

Front 3

current (short-term) liabilities

Back 3

Obligation due within one year or an operating cycle, whichever is longer. p. 357

Front 4

classified balance sheet

Back 4

Balance sheet that distinguishes between current and noncurrent items. p. 358

Front 5

liquidity

Back 5

Ability to convert assets to cash quickly and meet short term obligations. pp. 19, 359

Front 6

current ratio

Back 6

Measure of liquidity; calculated by dividing current assets by current liabilities. p. 359

Front 7

accounts receivable

Back 7

Expected future cash receipts arising from permitting customers to buy now and pay later; typically relatively small balances due within a short time period. pp. 62, 391

Front 8

accounts receivable turnover ratio

Back 8

Financial ratio that measures how fast accounts receivable are collected in cash; computed by dividing sales by accounts receivable. p. 405

Front 9

allowance for doubtful accounts

Back 9

Contra asset account used to record the amount of accounts receivable estimated to be uncollectible. p. 393

Front 10

allowance method of accounting for bad debts

Back 10

Method of accounting for receivables in which the amount of future uncollectible accounts is estimated and recognized as expense in the same period in which the corresponding sales are recognized. Receivables are reported in the financial statements at net realizable value (the amount expected to be collected in cash). p. 392

Front 11

amortization

Back 11

(1) Systematic and periodic allocation of the costs of intangible assets to expense over their useful lives; (2) periodically transferring the discount on a note or a bond to interest expense. pp. 410, 444

Front 12

average number of days to collect accounts receivable

Back 12

Measure of how quickly, on average, a business collects its accounts receivable; calculated as 365 divided by the accounts receivable turnover. p. 405

Front 13

bad debts expense

Back 13

Expense resulting from failure to collect accounts receivable; the amount recognized may be estimated using the allowance method, or, if not material, actual losses may be recorded using the direct write-off method. p. 393

Front 14

contra liability account

Back 14

Account used to reduce the reported value of the liability to which it relates; e.g., subtracting the contra liability Discount on Note Payable from Notes Payable reduces the amount of liabilities on the balance sheet. p. 409

Front 15

direct write-off method

Back 15

Accounting practice of recognizing uncollectible accounts expense when accounts are determined to be uncollectible, regardless of the period in which the related sale occurred. p. 400

Front 16

discount

Back 16

Amount of interest included in the face of a discount note; the discount (interest) is subtracted from the face amount of the note to determine the amount of cash borrowed (principal). p. 409

Front 17

discount notes

Back 17

Notes with interest included in their face value, which is also the maturity value. p. 409

Front 18

discount on notes payable

Back 18

Contra liability account subtracted from the Notes Payable account to determine the carrying value of the liability. p. 409

Front 19

going concern assumption

Back 19

Accounting presumption that a company will continue to operate indefinitely, benefiting from its assets and paying its obligations in full; justifies reporting assets and liabilities in the financial statements. p. 392

Front 20

interest-bearing notes

Back 20

Notes that require face value plus accrued interest be paid at maturity. p. 409

Front 21

issuer of the note

Back 21

Individual or business borrowing funds (the party receiving the cash when a note is issued). pp. 75, 409

Front 22

net realizable value

Back 22

The amount of accounts receivable a company expects to actually collect in cash; the face amount of receivables less an allowance for estimated uncollectible accounts. p. 392

Front 23

notes receivable

Back 23

Notes that evidence rights to receive cash in the future; usually specify the maturity date, rate of interest, and other credit terms. p. 391

Front 24

operating cycle

Back 24

Process of converting cash into inventory, inventory into receivables, and receivables back to cash; its length can be measured in days using financial statement data. pp. 357, 407

Front 25

payables

Back 25

Obligations to make future economic sacrifices, usually cash payments. p. 391

Front 26

principal

Back 26

Amount of cash actually borrowed, to be repaid in the future with interest. p. 409

Front 27

warranty

Back 27

Promise to correct a deficiency in or dissatisfaction with quality, quantity, or performance of a product or service sold. p. 402