Ben
the excess of the total amount of money paid to a lender over the amount borrowed.
interest
a card that authorizes a bank to make an immediate electronic withdrawal from the holder’s bank account and a corresponding deposit to another party’s account.
debit card
a card that authorizes the holder to make purchases up to some limit from retailers, and are a special form of factoring in which the issuer of pays the seller the amount of each sale less a service charge and then collects the full amount of the sale from the buyer at some later date.
credit card
a price reduction (usually expressed as a percentage of the selling price) that companies may offer to encourage prompt payment.
sales discount
money due from another business or individual as payment for services performed or goods delivered. Payment is typically due in 30 to 60 days and does not involve a formal note between the parties, nor does it include interest.
accounts receivable
the expense that results from receivables that are not paid.
bad debt expense
the process whereby companies systematically allocate the cost of their tangible operating assets (other than land) as an expense in each period in which the asset is used.
depreciation
merchandise or goods returned by the customer to the seller.
sales return
receivables that generally specify an interest rate and a maturity date at which any interest and principal must be repaid.
notes receivable
ratios that measure (1) those elements of operations that contribute to profit and (2) the relationship of profit to total investment and investment by stockholders.
profitability ratios
a contra-asset account that is established to “store” the estimate of uncollectible accounts until specific accounts are identified as uncollectible.
allowance for doubtful accounts
a price reduction offered by the seller to induce the buyer to keep the goods when the goods are only slightly defective, are shipped late, or in some other way are rendered less valuable.
sales allowance
the amount of money borrowed and promised to be repaid (usually with interest).
principal
a method of determining bad debt expense whereby past experience and management’s view of how the future may differ from the past are used to estimate the percentage of the current period’s credit sales that will eventually become uncollectible.
a method of handling receivables in which the seller receives an immediate cash payment reduced by the factor’s fees. The buyer of the receivables, acquires the right to collect the receivables and the risk of uncollectibility. In a typical arrangement, the sellers of the receivables have no continuing responsibility for their collection.
factor
an account receivable that is due from a customer purchasing inventory in the ordinary course of business.
trade receivable
a process in which large businesses and financial institutions frequently package factored receivables as financial instruments or securities and sell them to investors.
securitization
a method in which bad debt expense is estimated indirectly by determining the ending balance desired in the allowance for doubtful accounts and then computing the necessary adjusting entry to achieve this balance; the amount of this adjusting entry is also the amount of bad debt expense.
aging method
receivables that arise from transactions not involving inventory (e.g., interest receivable or cash advances to employees).
nontrade receivables
the accounts of revenue, expense, and dividend items that are used to collect the activities of only one period.
temporary account