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accounts receivable
outstanding customer debt on a credit sale, typically receivable within a short time period
accounts receivable turnover ratio
how many times accounts receivable is collected during an operating period and converted to cash
accrual accounting
records transactions related to revenue earnings as they occur, not when cash is collected
allowance for doubtful accounts
contra asset account that is specifically contrary to accounts receivable; it is used to estimate bad debt when the specific customer is unknown
allowance method
estimates bad debt during a period based on certain computational approaches, and it matches this to sales
bad debts
uncollectible amounts from customer accounts
balance sheet aging of receivables method
allowance method approach that estimates bad debt expenses based on the balance in accounts receivable, but it also considers the uncollectible time period for each account
balance sheet method
(also, percentage of accounts receivable method) allowance method approach that estimates bad debt expenses based on the balance in accounts receivable
completed contract method
delays reporting of both revenues and expenses until the entire contract is complete
contra account
account paired with another account type that has an opposite normal balance to the paired account; reduces or increases the balance in the paired account at the end of a period
direct write-off method
delays recognition of bad debt until the specific customer accounts receivable is identified
earnings management
works within GAAP constraints to improve stakeholders’ views of the company’s financial position
earnings manipulation
ignores GAAP rules to alter earnings significantly to improve stakeholder’s views of the company’s financial position
income statement method
allowance method approach that estimates bad debt expenses based on the assumption that at the end of the period, a certain percentage of sales during the period will not be collected
installment sale
periodic installment payments from buyers
monetary incentive to the lender, which justifies loan risk; interest is paid to the lender by the borrower
interest rate
part of a loan charged to the borrower, expressed as an annual percentage of the outstanding loan amount
issue date
point at which the security agreement is initially established
matching principle
(also, expense recognition principle) records expenses related to revenue generation in the period in which they are incurred
maturity date
date a bond or note becomes due and payable
net realizable value
amount of an account balance that is expected to be collected; for example, if a company has a balance of $10,000 in accounts receivable and a $300 balance in the allowance for doubtful accounts, the net realizable value is $9,700
note receivable
formal legal contract between the buyer and the company, which requires a specific payment amount at a predetermined future date, usually includes interest, and is payable beyond a company’s operating cycle
number of days’ sales in receivables
expected days it will take to convert accounts receivable into cash
percentage of completion method
percentage of work completed for the period divided by the total revenues from the contract
initial borrowed amount of a loan, not including interest; also, face value or maturity value of a bond (the amount to be paid at maturity)
outstanding amount owed from a customer
revenue recognition principle
principle stating that company must recognize revenue in the period in which it is earned; it is not considered earned until a product or service has been provided
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