Chapter 8: Receivables, Bad Debt Expense, and Interest Revenue

An advantage of extending credit is:

Disadvantages to extending credit includes:

________ is caused by having to hire more employees to see if someone is credit worthy, see how much money people owe, and to collect from customers.

________ is due to the fact that sometimes people don't pay what they owe.

________ means cash may be received in 30-60 days.

When accounts receivables aren't fully paid off, it results in ________.

Accounts Receivable is recorded at the value that is expected to be collected, aka ________.

You must record Sales Revenue and Bad Debt Expense in the same period of the sale. This is called ________.

A(n) ________ is estimating bad debts that may not be collected and adjusting these estimations later.

________ is a contra account to Accounts Receivable and has a normal credit balance.

When an account can not be collected, the account must be ________.

Write offs DO NOT appear on the ________.

Journal entry for write offs:

Net Receivable Value =

Journal entry to record sales on account:

Journal entry to record estimate for bad debts:

The two methods to calculate the estimate of bad debt:

________ is also known as the Income Statement Account. It estimates Bad Debt Expense for the period, but is not precise.

Equation for estimating bad debt expense (% of Credit Sales Method):

________ is also known as the Balance Sheet Method. It estimates the ending balance in the Allowance for Doubtful Accounts. It is more accurate.

Prepare an aged listing of accounts receivable. Estimate the bad debt loss percentages for each category. Compute the total estimated bad debts.

________ is when a company revises their bad debt estimates for the current period.

________ is reviving written off accounts.

There are always 2 journal entries for a ________.

Journal entry for reversing the write off (first recovery entry):

Journal entry for the collection of the account (second recovery entry):

A ________ is reported when a promissory note is used for a transaction. It has a stronger legal claim.

Notes receivables ________ from the date they are created to when they are due.

The day the Notes Receivable is due is called the ________.

A company may use a Notes Receivable for:

Equation for calculating interest =

The amount of the Note Receivable.

The interest percentage charged on the note.

The amount of time covered in the interest.

Journal entry for establishing a Note Receivable:

Journal entry for accruing interest earned but not received (use interest formula):

Journal entry for recording interest payments received (adjusting journal):

Journal entry for the principal payments received:

A(n) ________ helps see the effectiveness of a companys credit- granting and collection activity.

Selling goods or services make the receivables balance ________.

Collecting the money from customers makes the receivables balance _______.

________ is the constant selling and collecting cycle.

The ________ indicates how many times the cycle is repeated during the accounting period.

Higher vs lower receivables turnover ratio

________ is the number of days to collect receivables. A higher ratio means it takes more days to collect. We want a low ratio.

Equation for Receivable Turnover Ratio: Receivable Turnover Ratio =

Equation for Days to Collect: Days to Collect =

________ speed up cash collection and make it less likely to receive bad checks from customers.

________ is an agreement between the buyer and seller about the timings and payment to be made for the goods bought on credit.

A ________ is when you sell outstanding accounts to a different company. By doing so, your company is paid for the receivables it sells to the factors. A factoring fee must be considered.