Amounts owed to a company by its customers from selling goods or services on credit.
C1Subsidiary ledger
A list of individual account balances that together add up to a single controlling account in the general ledger.
C1Credit card
A card allowing its holder to buy on credit from participating merchants, who accept a fee for the convenience and reduced risk.
C2Direct write-off method
Records bad debts expense only when a specific account is judged uncollectible, with no allowance account.
C2Allowance method
Estimates and records bad debts expense before specific accounts are known to be uncollectible, using a contra-asset allowance.
C2Bad debts
Accounts receivable a company does not expect to collect.
C2Allowance for doubtful accounts
A contra-asset account estimating the amount of accounts receivable a company expects will prove uncollectible.
C2Realizable (net realizable) value
The amount of accounts receivable a company actually expects to collect: accounts receivable minus the allowance.
A1Percent of sales method
Estimates bad debts expense as a percent of credit sales, added to whatever balance the allowance already carries.
A1Percent of receivables method
Estimates the required ending balance of the allowance directly from accounts receivable; the expense is whatever adjusts the allowance to that target.
A1Aging of accounts receivable
Sorting individual accounts receivable by how long they have been outstanding, to estimate uncollectible amounts by age group.
C2Materiality constraint
An amount small enough that it would not affect a reasonable person’s decisions can be treated more simply, without violating GAAP.
P2Promissory note
A written promise to pay a specified amount, either on demand or at a definite future date.
P2Principal
The amount that a promissory note promises to pay, not including interest.
P2Maker
The person or entity who signs a note and promises to pay it at maturity.
P2Payee
The person or entity to whom a promissory note is made payable.
P2Maturity date
The date a note (and any interest) is due to be paid.
P2Period of a note
The time between a note’s issue date and its maturity date.
P2Maturity value
The amount due at a note’s maturity date: principal plus interest.
P2Dishonored note
A note the maker fails to pay at maturity; the holder still records the interest it earned and moves the balance to accounts receivable.
C1Pledging receivables
Using accounts receivable as collateral for a loan, while still owning and collecting them.
C1Factoring
Selling accounts receivable to another party for immediate cash, usually at a discount.
C1Factor
A business that buys accounts receivable from another company in a factoring arrangement.
A2Accounts receivable turnover
Net sales divided by average accounts receivable; how many times receivables were collected and re-extended in a period.
Formulas
C2
Net realizable value = Accounts receivable − Allowance
$100,000 − $5,150 = $94,850
A1
Bad debts expense (sales method) = Credit sales × Rate