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Key Terms

  • Accounts Receivable: Amounts owed to business by customers who purchased on credit
  • Accounts Receivable Turnover: Ratio measuring how many times receivables are collected
  • Allowance for Doubtful Accounts: Contra-asset account estimating uncollectible receivables
  • Allowance Method: Method of accounting for bad debts using estimates
  • Average Collection Period: Average number of days to collect receivables
  • Bad Debt Expense: Expense for uncollectible accounts
  • Direct Write-Off Method: Writing off bad debts when they occur (not preferred)
  • Notes Receivable: Formal written promise to pay with interest
  • Revenue Recognition Principle: Revenue recognized when earned, not when cash received
  • Uncollectible Accounts: Accounts receivable that cannot be collected (bad debts)