Accounting Terms - Chapter 6

Front 1

Accounts receivable

Back 1

Receivables created by selling merchandise or services on credit.

Front 2

Aging the receivables

Back 2

The process of analyzing the accounts receivable and classifying them according to various age groupig, with the due date being the base point for determining age.

Front 3

Allowance for doubtful accounts

Back 3

The contra asset accounts receivable.

Front 4

Allowance method

Back 4

The method of accounting for uncollectible accounts that provides an expense for uncollectable receivables in advance of their write-off.

Front 5

Average inventory cost flow method

Back 5

The method of inventory costing that is based upon the assumption that costs should be charred against revenue by using the weighted average unit cost of the items sold.

Front 6

Bad debt expense

Back 6

The operating expense incurred because of the failure to collect receivables.

Front 7

Cost of goods sold

Back 7

The cost of the manufactured product sold.

Front 8

Direct write-off method

Back 8

The method of accounting for uncollectible accounts that recognizes the expense only when accounts are judged to be worthless.

Front 9

Finished goods inventory

Back 9

The cost of finished products on hand that have not been sold.

Front 10

First in, first-out (FIFO) inventory method

Back 10

A method of inventory costing based on the assumption that the costs of merchandise sold should becharged against revenue in the order in which the costs were incurred.

Front 11

Last-in, first-out (LIFO) inventory method

Back 11

A method of inventory costing based on the assumption that the most recent merchandise inventory costs should be charged against revenue.

Front 12

LIFO conformity rule

Back 12

A financial reporting rule requiring a firm that elects to use LIFO inventory valuation for tax purposes to also use LIFO for external financial reporting.

Front 13

LIFO reserve

Back 13

A required disclosure for LIFO firms, showing the difference between inventory valued under FIFO and inventory valued under LIFO.

Front 14

Lower-of-cost-or-market (LCM) method

Back 14

A method of valuing inventory that reports the inventory at the lower of its cost or current marker value (replacement cost).

Front 15

Materials inventory

Back 15

The cost of materials that have not yet entered into the manufacturing process.

Front 16

Maturity value

Back 16

The amount that is due at the maturity or due date of a note.

Front 17

Merchandise inventory

Back 17

Merchandise on hand (not sold) at the end of an accounting period.

Front 18

Net realizable value

Back 18

For a receivable, the amount of cash expected to be realized in the future. For inventory, the estimated selling price of an item of inventory less any direct costs of disposal, such as sales commissions.

Front 19

Notes receivable

Back 19

Written claims against debtors who promise to pay the amount of the note plus interest at an agreed upon rate.

Front 20

Receivables

Back 20

All money claims against other entities, including people, business firms, and other organizations.

Front 21

Specific identification inventory cost flow method

Back 21

An inventory cost flow method where the cost of each inventory unit is separately identified.

Front 22

Work-in-process (WIP) inventory

Back 22

The direct materials costs, the direct labor costs, and the factory overhead costs that have entered into the manufacturing process but are associated with products that have not been finished.