Accounting Test 2
Terms
undefined, object
copy deck
- accounts receivable (trade receivables, receivables)
- open accounts owed to the business by trade cutomers
-
aging of accounts receivable method
- estimates uncollectible accounts based on the age of each account receivable
- allowance for doubtful accounts (allowance for bad debts, allowance for uncollectible accounts)
- a contra-asset account containing the estimated uncollectible accounts receivable
-
allowance method
- bases bad debt expense on an estimate of uncollectible accounts
- bad debt expense (doubtful accounts expense, uncollectible accounts expense, provision for uncollectible accounts)
-
the expense associated with estimated uncollectible accounts receivable
-
bank reconcilication
- the process of verifying the accuracy of both the bank statement and the cash accounts of a business
-
bank statement
-
a monthly report from a bank that shows deposits recorded, checks cleared, other debits and credits, and a running bank balance
- cash
- money or any instrument that banks will accept for deposit and immediate credit to a company's account, such as a check, money order, or bank draft
-
cash equivaents
- short-term investments with original maturities of three months or less that are readily convertible to cash and whose value is unlikely to change
- credit card discount
- the fee charged by the credit card company for services
- internal controls
- the processes by which a company safeguards its assets and provides reasonable assurance regarding the reliability of the company's financial reporting, the effectiveness and efficiency of its operations, and its compliance with applicable laws and re
- notes receivable
- written promises that require another party to pay the business under specified conditions (amount, time, interest)
-
Percentage of credit sales method
- bases bad debt expense on the historical percentage of credit sales that result in bad debts
-
Receivables Turnover Ratio
-
measures the effectiveness of credit-granting and collection activities.
Receivables Turnover =
Net Sales/ Avg. Net Trade Accounts Recievable
- sales discount (cash discount)
- a cash discount offered to encourage prompt payment of an account receivable
-
sales returns and allowances
-
a reduction of sales revenues for return of or allowances for unsatisfactory goods