accounts receivable

balances customers owe on account as a result of the sale of goods or services. They are normally unsecured and noninterest-bearing.

aging-of-receivables method

method for estimating bad debts expense utilizing a report that classifies customer balances by the length of time those accounts have been unpaid

allowance for doubtful accounts

contra account to accounts receivable that reports the accumulated amount of accounts receivable a company estimates it will not collect

allowance method

method for accounting for bad debts or uncollectible accounts that involves estimating those uncollectible accounts at the end of each reporting period

bad debt expense

amount of uncollectible accounts receivable that a company does not expect to collect and has written off to the income statement

contra asset account

account having the opposite normal balance of the related account

direct write-off method

method for accounting and reporting bad debts only when a particular customer account is proven to be uncollectible

face amount

amount of money (excluding interest) that the maker (or debtor) borrowed or the payee (or creditor) loaned in a note transaction


party who makes the promise to pay in a promissory note

maturity date

date on which a maker (or debtor) must pay its note balance to the payee (or creditor)

maturity value

sum of both the principal and interest due on a note

net realizable value

as it relates to accounts receivable, the net amount a company expects to receive in cash from those receivables

notes receivable

written promises (typically evidenced by a formal instrument) to receive a specific amount of money (plus or with interest) at a designated future date or on demand


party to whom the payment will be made in a promissory note

percentage-of-sales method

method for estimating bad debts under the allowance method that involves computing bad debt expense as a percent of sales on account

promissory note

written promise to pay a specified amount of money at some definitive date or on demand


borrower (customer) provides the lender (company) a claim to a certain amount of its assets (often referred to as collateral) in the event of the borrower's default, or failure to pay the note


time period extending from the note's issuance date to the note's maturity date