Download Accounting Terms: A Comprehensive Glossary of Accounts Receivable and Related Concepts and more Quizzes Accounting in PDF only on Docsity! TERM 1 Accounts Receivable DEFINITION 1 Oral promises of the purchaser to pay for goods and services sold. They represent short-term extensions of credit, which are normally collected within 30 to 60 days TERM 2 Aging Schedule DEFINITION 2 A schedule (worksheet or spreadsheet) that shows a company's accounts receivable and estimates uncollectible accounts by applying to the various age categories different percentages estimated to be uncollectible based on past experience. An aging schedule also identifies which accounts require special attention by indicating the extent to which certain accounts are past due TERM 3 Bank Overdrafts DEFINITION 3 Occur when a company writes a check for more than the amount in its cash account. Companies should report bank overdrafts in the current liabilities section, adding them to the amount reported as accounts payable. If material, companies should disclose these items separately. TERM 4 Bank Reconciliation DEFINITION 4 A schedule explaining any differences between the bank's and the company's records of cash. If some part of the difference arises from items other than transactions not yet recorded by the bank, either the bank or the company must adjust its records. TERM 5 Cash DEFINITION 5 Consists of coin, currency, and available funds on deposit at the bank, as well as negotiable instruments such as money orders, certified checks, cashier's checks, personal checks, and bank drafts. Cash, the most liquid of assets, is the standard medium of exchange and the basis for measuring all other items. Companies generally classify cash as a current asset. TERM 6 Cash Discounts DEFINITION 6 Reductions from the sales price, offered by sellers to buyers to induce prompt payment. Also called sales discounts. Cash discounts generally read in terms such as 2/10, n/30 (2 percent if paid within 10 days, gross amount due in 30 days). Companies can account for sales discounts using either the gross or the net method; most use the gross method, in which they record sales and related sales discount transactions by entering the receivable and sale at the gross amount and using a Sales Discount account only when they receive payment within the discount period. TERM 7 Cash Equivalents DEFINITION 7 Short-term, highly liquid investments that are both: (a) readily convertible to known amounts of cash, and (b) so near their maturity that they present insignificant risk of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under this definition. Examples are Treasury bills, commercial paper, and money market funds purchased with cash that is in excess of immediate needs. TERM 8 Compensating Balances DEFINITION 8 Minimum cash balances in checking or savings accounts, required by some banks and other lending institutions in support for existing borrowing arrangements. Companies must disclose in the financial statements the details of deposits held as compensating balances. TERM 9 Direct Write-Off Method DEFINITION 9 A method for recording uncollectible accounts receivable by recording the bad debt in the period in which a company determines that it cannot collect a specific receivable. The direct write-off method is used for tax purposes but is otherwise not usually considered appropriate because it usually does not result in the proper carrying value for accounts receivable and it fails to match costs with revenues of the period. TERM 10 Impairment (Loans) DEFINITION 10 The difference between the in the loan (generally the principal plus accrued interest) and the expected future cash flows discounted at the loan's historical effective interest rate.
