Key Terms
Accounts receivable
Outstanding customer debt from a credit sale.
Accounts Receivable
$2,200 credit
Format
2/10, n/30 means: 2% discount if paid within 10 days; full amount due within 30 days.
Bad debts
Amounts owed by customers that will not be collected. Two methods exist for recording them: direct write-off and allowan
Example
$2,200 receivable sold to agency for $500.
Based on
Accounts Receivable balance sorted by how long each balance is past due
Formula
Interest = Principal x Rate x (Time / 12)
Logic
The older the debt, the less likely it is to be collected. How it works:
Limitation
Does not consider how long debts have been outstanding.
Earnings management
Adjusting estimates and methods WITHIN GAAP rules to present the best legitimate financial position.
Earnings manipulation
Ignoring or bending GAAP rules to fraudulently misstate earnings. This is illegal.
Basis
Percentage of total estimated project cost incurred so far, or an engineering estimate of completion. Preferred method.
Principal
The initial loan amount, not including interest Issue date: when the note agreement is established Maturity date: when p
Cash
$500 debit
Factoring Expense
$1,700 debit