Principles Of Accounting - Chapter 8 Terms

Front 1

Acid-test ratio

Back 1

Ration that reveals how well the entity can pay its current liabilities. Also called the quick ratio.

Front 2

Aging method

Back 2

Method of estimating uncollectible accounts that focuses on accounts receivable; the accountant calculates the end-of-the-period allowance balance needed according to the aging of the receivable accounts. Also called the balance-sheet approach.

Front 3

Allowance for Uncollectible Accounts

Back 3

A contra-asset account that holds the estimated account of uncollectible accounts receivable.

Front 4

Allowance method

Back 4

The method of accounting for uncollectible accounts that estimates these amounts and uses an allowance account so that the balance sheet shows the amount of accounts receivable expected to be collected in the future.

Front 5

Bad debts

Back 5

Receivable amounts due that are never collected. Also called uncollectible accounts.

Front 6

Balance-sheet approach

Back 6

Method of estimating uncollectible accounts that focuses on accounts receivable; the accountant calculates the end-of-the-period allowance balance needed according to the aging of the receivable accounts. Also called the aging method.

Front 7

Collection period

Back 7

The number of days it takes to collect the average level of receivables. Also called the days' sales in receivables.

Front 8

Control account

Back 8

An account in the general ledger that summarizes the details of an account balance.

Front 9

Creditor

Back 9

The entity to whom the debtor promises future payment. Also called the payee of a note.

Front 10

Days' sales in receivables

Back 10

The number of days it takes to collect the average level of receivables. Also called the collection period.

Front 11

Debtor

Back 11

The entity that promises future payment; also called the maker of a note.

Front 12

Default

Back 12

Failure of the maker to pay the note at maturity. Also called dishonor.

Front 13

Direct write-off method

Back 13

The method of accounting for uncollectible accounts that writes off a customer's account as an uncollectible when the business knows the customer will not pay.

Front 14

Dishonor

Back 14

Failure of the maker to pay the note at maturity. Also called default.

Front 15

Due date

Back 15

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

Front 16

Income-statement approach

Back 16

Method of estimating uncollectible accounts that focuses on net credit sales. Also called the percent-of-sales method.

Front 17

Interest

Back 17

The fee for using money; revenue to the creditor for loaning money; expense to the debtor for borrowing money.

Front 18

Interest period

Back 18

The time span of the note during which interest is computed; it extends from the original date of the note to the maturity date. Also called note term, or time.

Front 19

Interest rate

Back 19

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

Front 20

Maker

Back 20

The entity that promises future payment; Also called the debtor.

Front 21

Maturity date

Back 21

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

Front 22

Maturity value

Back 22

The sum of the principal plus interest due at maturity.

Front 23

Net credit sales

Back 23

The total credit sales less sales discounts and sales returns and allowances related to the credit sales.

Front 24

Net realizable value

Back 24

The net amount that the business expects to collect; the net realizable value of receivables is calculated by the subtracting Allowance for Uncollectible Accounts from Accounts Receivable.

Front 25

Note term

Back 25

The time span of the note during which interest is computed; it extends from the original date of the note to the maturity date. Also called the interest period, or time.

Front 26

Payee

Back 26

The entity to whom the debtor promises future payment. Also called the creditor.

Front 27

Percent sales method

Back 27

Method of estimating uncollectible accounts that focuses on net credit sales. Also called the income statement approach.

Front 28

Principal

Back 28

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

Front 29

Quick assets

Back 29

Highly liquid assets used to calculate the quick ratio, including cash and cash equivalents, short-term investments, and accounts receivable, net.

Front 30

Quick ratio

Back 30

Ratio that reveals how well the entity can pay its current liabilities. Also called the acid-test ratio.

Front 31

Recovery of an uncollectible account

Back 31

Collection of cash from an account previously written off.

Front 32

Time

Back 32

The time span of the note during which interest is computed; it extends from the original date of the note to the maturity date. Also called the interest period, or note term.

Front 33

Uncollectible accounts

Back 33

Receivable amounts due that are never collected. Also called bad debts.

Front 34

Uncollectible accounts expense

Back 34

Selling expense caused by uncollectible accounts that reduce operating income.

Front 35

Write off

Back 35

Removing a customer's receivable from the accounting records because it is considered uncollectible.