Principles of Financial Accounting Exam 3 Questions & Answers

accounts receivable - ANSWERSexpected future cash receipts arising from permitting customers to buy now and pay later Accounts Receivable turnover ratio - ANSWERSFinancial ratio that measures how fast accounts are collected in cash Accrued interest - ANSWERSInterest revenue or expense that is recognized before cash has been exchanged Adjusting Entry - ANSWERSentry that updates account balances prior to preparing financial statements Aging of accounts receivable - ANSWERSclassifying each account receivable by the number of days it has been outstanding. purpose is to develop a more accurate estimate of the amount of uncollectible accounts Allowance for doubtful accounts - ANSWERScontra asset account used to record the amount of accounts receivable estimated to be uncollectible allowance method of accounting for uncollectible accounts - ANSWERSestimated rather than the actual amount of uncollectible accounts expense collateral - ANSWERSassets pledged as security for a loan contra asset account - ANSWERSused to reduce the reported value of the asset to which it relates direct write off method - ANSWERSrecognizing uncollectible accounts expense when accounts are determined to be uncollectible Interest - ANSWERSfee paid for the use of funds Liquidity - ANSWERSability to convert assets to cash quickly and meet short-term obligations Maker - ANSWERSthe party issuing a note matching concept - ANSWERSrecognizing expenses in the same accounting period as the revenues they produce maturity date - ANSWERSthe date that a liability is due to be settled net realizable value - ANSWERSthe amount of accounts receivable a company expects to actually collect in cash Notes receivable - ANSWERSnotes that evidence rights to receive cash in the future operating cycle - ANSWERSprocess of converting cash into inventory, inventory into receivables, and receivables back into cash payee - ANSWERSthe party collecting cash percent of receivables method - ANSWERSa method of estimating the amount of uncollectible accounts by taking a percent of the outstanding receivables balance percent of revenue method - ANSWERSestimating the amount of uncollectible accounts by taking a percent of revenue that was earned on account principal - ANSWERSamount of cash actually borrowed promissory role - ANSWERSa legal document representing a credit agreement between a lender and a borrower reinstate - ANSWERSrecording an account receivable previously written off back into the accounting records uncollectible accounts expense - ANSWERSexpense associated with uncollectible accounts receivsble accelerated depreciation method - ANSWERSdepreciation method that recognizes more depreciation expense in the early stages of an assets life than the straight-line method and less later in the assets life accumulated depreciation - ANSWERScontra asset account that shows the sum of all depreciation expense recognized for an asset since the date of acquisition amortization - ANSWERSsystematic repayment of principal and interest over the life of a loan basket purchase - ANSWERSacquiring several assets at once for single purchase price book value - ANSWERShistorical cost of an asset minus accumulated depreciation to date capital expenditures - ANSWERSsubstantial amounts spent to improve an assets quality or to extend its life carrying value - ANSWERSface amount of a bond liability less any unamortized bond discount or plus any unamortized bond premium copyright - ANSWERSlegal protection of writings, musical compositions, and other intellectual property current asset - ANSWERSasset that will be converted to cash or consumed within one year or an operating cycle, whichever is longer deferred tax liability - ANSWERSincome tax payment postponed until future years because of the difference in accounting methods selected for financial reporting and methods required for tax purposes depletion - ANSWERSthe removal of natural resources from the land depreciable cost - ANSWERSoriginal cost minus salvage value depreciation - ANSWERSdecline in value of long term tangible assets depreciation expense - ANSWERSPortion of the original cost of a long term tangible asset allocated to an expense account double declining balance depreciation - ANSWERSdepreciation computations that produce larger amounts of depreciation in the early years of an assets life estimated useful life - ANSWERStime period for which a business expects o use an asset franchise - ANSWERSexclusive right to sell products or preform services in certain geographical areas goodwill - ANSWERSintangible added value of a successful business attribute to such factors as reputation, location, and superior products that enable the business to earn above average profits half year convention - ANSWERSTax rule that requires recognizing six months of depreciation expense on an asset both in the year of purchase and in the year of disposal regardless of the actual purchase date. historical cost concept - ANSWERSAccounting practice of reporting assets at the actual price paid for them when purchased regardless of estimated changes in market value. intangible assets - ANSWERSLong-term assets having no physical substance that benefit their owners through