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Accounting Ch 9

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Updated 2007-04-06 08:10

Definitions

TermDefinition
CreditorThe party to a credit transaction who sells good or a service and receivable.
DebtorThe party to a credit transaction who makes a purchase and has a payable.
Uncollectable-Account ExpenseCost to the seller of extending credit. Arises from the failure to collect from credit customers.
Allowance MethodA method of recording collection losses on the basis of estimates.
Allowance for Uncollectable AccountsA contra account, related to accounts receivable, that holds the estimated amount of collection losses.
Percent of Sales MethodA method of estimating uncollectible receivables that calculates uncollectible-account expense.
Aging-of-Accounts MethodA way to estimate bad deb ts by analyzing individual accounts receivable according to the length of time they have been receivable from the customer.
Direct Write-Off MethodA method of accounting for uncollectible receivables, waits until the credit department decided that a customer's account receivable is uncollectible and then debits uncollectible-account expense and credits the customer's account receivable.
Maker of a NoteThe person or business that signs the note and promises to pay the amount required by the note agreement, the debtor.
Payee of a NoteThe person or business to whom the maker of a note promises future payment, the creditor.
Dishonor of a NoteFailure of a note's maker to pay a note receivable at maturity.
Acid-Test Ratio( Cash + Short-term investments + Net currect receivables ) / Total current liabilites. Tells whether the business can pay all of it's liabilites if they were due immediatly.
Days' Sales in ReceivablesAverage net accounts receivables / one day's sales. Tells how many days' sales it takes to cellect the average level of receivables.
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