A credit sale on open account creates an account receivable. A
note receivable is a promise in writing (a formal document) to
pay (1) a specified amount of money, called the principal, on a
definite future date known as the maturity date and (2) a
specified amount of interest on one or more future dates. A sale
of merchandise or services on credit in the normal course of
business creates a trade receivable. A nontrade receivable
arises from transactions other than the normal sale of
merchandise or services. Receivables are classified as either
current or noncurrent (short term or long term), depending on
when cash is expected to be collected. LO2 Account for and
report the effects of uncollectible accounts. Under generally
accepted accounting principles, companies must use the allowance
method to account for uncollectibles. This method involves two
steps: Estimate and record uncollectibles with an end-of-period
adjusting entry that increases Bad Debt Expense (debit) and
increases the Allowance for Doubtful Ac