Net Accounts Receivable: Percentage of Sales Method definitions Flashcards
Net Accounts Receivable: Percentage of Sales Method definitions
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Percentage of Sales Method An income statement approach estimating uncollectible accounts by applying a set rate to total credit sales for a period. Credit Sales Revenue from sales where payment is received at a later date, relevant for estimating potential uncollectible amounts. Cash Sales Transactions where payment is received immediately, not considered when estimating bad debts. Bad Debt Expense Estimated cost of credit sales expected to be uncollectible, recorded as an expense on the income statement. Allowance for Doubtful Accounts A contra-asset account representing the estimated amount of receivables not expected to be collected. Income Statement Approach A method focusing on sales figures to estimate expenses, such as bad debts, for a specific period. Uncollectible Accounts Amounts from credit sales that are not expected to be received from customers. Journal Entry A formal accounting record documenting the recognition of bad debt expense and the corresponding credit to the allowance. Beginning Balance The amount present in an account, such as the allowance for doubtful accounts, at the start of a period. Ending Balance The final amount in an account after all additions and subtractions for the period have been made. Write-Offs Reductions in the allowance for doubtful accounts when specific receivables are deemed uncollectible. T Account A visual tool used to track increases and decreases in an account, aiding in calculating balances. Contra-Asset Account An account that offsets a related asset account, such as the allowance for doubtful accounts reducing accounts receivable. Policy Estimate A predetermined percentage used by a company to estimate the portion of credit sales expected to be uncollectible.
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