Definitions
| Term (memorize) | Definition (memorize) |
|---|---|
| Creditor | The party to a credit transaction who sells good or a service and receivable. |
| Debtor | The party to a credit transaction who makes a purchase and has a payable. |
| Uncollectable-Account Expense | Cost to the seller of extending credit. Arises from the failure to collect from credit customers. |
| Allowance Method | A method of recording collection losses on the basis of estimates. |
| Allowance for Uncollectable Accounts | A contra account, related to accounts receivable, that holds the estimated amount of collection losses. |
| Percent of Sales Method | A method of estimating uncollectible receivables that calculates uncollectible-account expense. |
| Aging-of-Accounts Method | A 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 Method | A 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 Note | The person or business that signs the note and promises to pay the amount required by the note agreement, the debtor. |
| Payee of a Note | The person or business to whom the maker of a note promises future payment, the creditor. |
| Dishonor of a Note | Failure 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 Receivables | Average 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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