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55 Cards in this Set
- Front
- Back
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What is Accounts Receivable? |
Receivables arising from the sale of goods and services with a verbal promise to pay |
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Where is accounts receivable stated? |
On the balance sheet at net realizable, which takes into account and estimate of the uncollectible amount(bad debts) |
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What are the methods used in estimating bad debts? |
1. Percentage of sales approach 2. Percentage of receivables approach |
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What are the methods to account for bad debts? |
Direct write off Allowance |
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What is Direct Write-off method: |
Recognition of bad debts expense at the point an account is written off as uncollectible |
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What is the allowance method: |
Estimating bad debts on the basis of either net credit sales or accounts receivable |
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What is the Allowance for doubtful accounts? |
A contra-asset account- reduce accounts receivable to its net realizable value. |
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What is the percentage of Net Credit sales Approach? |
-Uses the past relationship between bad debts and net credit sales to predict bad debt amounts. |
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What is the percentage of accounts receivable approach? |
-Estimate bad debts by relating them to the balance in the accounts receivable |
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What is the Accounts Receivable Turnover Ratio? |
-Measures the number of times accounts receivable is collected during the period |
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What is the accounts receivable turnover ratio Equation? |
Net Credit Sales/ Average accounts receivable |
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What is the Number of Days' sales in receivables |
Measures how long it takes to collect receivables. |
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What is the Number of Days' Sales in receivables Equation? |
Number of Days in the period/ Accounts receivables Turnover Ratio. |
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What are the steps in the ratio analysis model? |
1. How many times a year does a company turn over its accounts receivable? 2. Gather the information about net credit sales and average accounts receivable 3. Calculate accounts receivable turnover ratio 4. Compare the ratio with prior years and with competitors. 5. Interpret the ratios- measures how long it takes to collect receivables |
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The Business Decision Model? |
1. If you were a banker, would you loan money to a company? 2. Gather information from the financial statements and other sources. 3. compare the company's accounts receivable turnover ratio with industry averages and look at trends. 4. Lend money or find an alternative use for the money 5. Monitor the loan periodically |
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What is Notes Receivable? |
-Asset resulting from the acceptance of a promissory note from another entity |
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Promissory Note? |
A written promise to repay a definite sum of money on demand or at a fixed or determinable date in the future |
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What/Who is the Maker of a Notes receivable |
A party that agrees to repay the money |
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Who is the payee of a Notes Receivable? |
Party that will receive the money |
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What is a note payable? |
A liability resulting from the signing of a promissory note. |
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What is the principal on a promissory note? |
The cash received, or the fair value of the products or services received, by the maker when a promissory note is issued. |
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What is the Maturity date on a promissory note? |
The due date |
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What is the term on a promissory note? |
The length of time a note is outstanding |
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What is the maturity value on a promissory note? |
The amount to be paid by the maker |
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What is the interest on a Promissory note? |
The difference between the principal amount and the maturity value |
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What do Credit card sales do? |
-Accelerate collection of cash from a customer
- Pass the risk of nonpayment to credit card company |
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What is Discounting Notes receivable? |
Allows a company to accelerate the inflow of cash |
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What is Discounting a notes receivable? |
The process of selling a promissory note -Sell note prior to maturity date for cash Usually done "With Recourse" |
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What does "with Recourse" mean? |
If the customer fails to pay the bank, the company that transferred the note. The bank is liable for the full amount. |
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What is a CD? |
Highly liquid financial instrument |
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What are Equity Securities? |
Issued by corporations and governmental bodies as a form of borrowing |
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What are the categories of operating assets presented on the balance sheet? |
-Property, plant and equipment -Intangible assets |
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Operating Assets? |
Presented at their acquisition cost (historical cost) Essential to the company's long - term future -used to produce goods or services the company sells to customers - Constitute the major productive assets of many companies |
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What is the presentation of property plant and equipment in the balance sheet? |
Uses one line item for property plant and equipment, and presents the details in the notes |
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What is the Acquisition cost of property plant and equipment? |
Includes all cost normally necessary to acquire an asset and prepare it for its intended use. -Purchase price -Taxes paid at time of purchase - Transportation charges -Installation cost |
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Group Purchase? |
Firm purchases several assets as a group and pays a lump-sum amount Acquisition cost of each asset is separately measured on the basis of the proportion of the fair market value of each. |
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What is capitalization of interest? |
The interest on borrowed money should be treated as an expense of the period |
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If a company constructs an asset over a period of time and borrows money to finance the construction then? |
-The interest incurred during the construction period and not treated as interest expense. - The interest must be included as part of the acquisition cost of the asset. |
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What is different about land improvements? |
The acquisition cost of land should be kept in a separate account because land has an unlimited life and is not subject to depreciation |
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Acquisition cost |
This amount includes all of the costs normally necessary to acquire an asset and prepare it for its intended use. |
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Capitalization of Interest |
the process of treating the cost of interest om constructed assets as a part of the asset cost rather than an expense. |
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Land Improvements |
Additions made to a piece of property, such as paving or landscaping a parking lot. The costs are treated separately from land for purposes of recording depreciation |
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Depreciation |
The allocation of the original acquisition cost of an asset to the periods benefited by its use |
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Straight-line-method |
A method by which the same dollar amount of depreciation is recorded in each year of asset use. |
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Book Value |
The original acquisition cost of an asset minus the amount of accumulated depreciation. |
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Units-of-production method |
A method by which depreciation is determined as a function of the number of units the asset produces |
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Accelerated depreciation |
A term that refers to several methods by which a higher amount of depreciation is recorded in the early years of an asset's life and a lower amount is recorded in the later years. |
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Double-declining method |
A method by which depreciation is recorded at twice the straight line rate, but the depreciate balance is reduced in each period |
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Change in estimate |
A cost that improves the asset and is added to the asset account |
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Revenue expenditures |
A cost that keeps an operating asset in its normal operating condition and treated as an expense of the period. |
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Gain on sale of Asset |
An account whose amount indicates that the selling price received on an asset's disposal exceeds its book value. |
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Loss on the sale of an asset |
An account whose amount indicates that the book value of an asset exceeds the selling price received on its disposal. |
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Intangible Asset |
Long-term assets that have no physical properties;for example , patents, copyrights, and goodwill |
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Goodwill |
The excess of the purchase price to acquire a business over the value of the individual net assets acquired. |
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Research and development costs |
Expenditures incurred in the discovery of new knowledge and the translation of research into a design or plan for a new product. |
