INTERMEDIATE ACCOUNTING – 1(REVIEWER)  Cash fund – current purposes such as: set aside for

current purposes (depende talaga sa purpose pag cash

CASH AND CASH EQUIVALENTS
fund)
CASH INCLUDES: - Petty cash fund
- Payroll fund
 Money
- Dividend fund
 Any other negotiable instrument that is payable in
- Interest fund
money and acceptable by the bank for deposit and
- Travel fund
immediate credit.
- Tax fund
 Checks
- Bond Sinking Fund –basta one year after the
 Bank drafts
reporting period.
 Money orders
 Deposits in foreign currency which are not subject for
 Cash on Hand – undeposited cash collections and foreign exchange restriction are included in cash.
other cash items awaiting deposit such as:
 Undelivered or Unreleased Check
- Customers’ checks
 Postdated Check Delivered
- -Cashier’s or manager’s checks
 Stale Check Given
- -Traveler’s checks
- -Bank drafts
- -Money orders. (postal money order) NOT INCLUDED IN CASH
- Personal checks
 Postdated checks (unacceptable by the bank for
- Certified checks
received.
Cash in Bank – includes:  Deposit and immediate credit or outright
encashment.) (“cash inbank includes customer
- Demand deposit
check of 200,000 outstanding for 18 months)
- Checking account
 Restricted Cash
- Savings deposit
 IOU
- All of the above must be unrestricted as to
 NSF Check – if na redeposit within the year, di
withdrawal.
na ileless or ignored nalang.
 Sinking fund
  Preference share redemption fund that they present insignificant risk of changes in value
 Contingent fund because of changes in interest rates.
 Insurance fund  Only highly liquid investments that are acquired 3
 Fund for acquisition and construction of PPE months before maturity can qualify as cash equivalents
 Savings Deposit in Closed Bank
REQUISITES
-“the cash receipt journal was held open until
Jan 15, 2021  Instruments with original maturity of 3 months (90
during which time an amount of 450,000 was days) or less.
collected and  Instruments whose original maturity is more than 3
recorded on Dec 31, 2021. months (90 days) but was acquired 3 months before
A/R 450,000 maturity date.
Cash 450,000
COMMON CASH EQUIVALENTS

 Treasury Bill-short term (less than 1 year)

UNRESTRICTED CASH  Treasury Notes-long term (1-10 years)
 Treasury Bonds (1-10 years)
 There is no specific dealings with “cash”.
 Money Market Instruments/Placement
 An entity shall classify an asset as current when the
 Commercial Papers
asset as cash or cash equivalents unless it is restricted
to settle a liability for more than 12 months after the  Time Deposit/Certificate of Deposit
end of the reporting period.  Redeemable Preference Shares
 To be reported as “cash ”, an item must be INVESTMENT OF EXCESS CASH
unrestricted in use
 Cash must be readily available and not subject to any  Entity must maintain sufficient cash for use in current
restriction, contractual or otherwise. operations.
 Any cash accumulated in excess of that needed for
CASH EQUIVALENTS current operations should be invested even
 Short-term and highly liquid investments that are temporarily in some type of revenue earning
readily convertible into cash and so near their maturity investment.
  Excess cash may be invested in time deposit, money  Without restriction – part of C&CE
market instrument and treasury bills for the purpose of  If restricted and silent – part of NCA
earning interest income.
CASH FUND FOR CERTAIN PURPOSE
CLASSIFICATIONS OF INVESTMENT OF EXCESS CASH
 Part of cash and cash equivalents.
Investment in time deposit, money market instruments and - Petty cash fund, payroll fund, travel fund,
treasury bills should be classified as: interest fund, dividend fund and tax fund.
 Not part of cash and cash equivalents.
- If the term is, such instruments are three months or
- Sinking fund, P/S redemption fund,
less classified as cash equivalents.
contingent fund, insurance fund and fund for
- If the term is more than 3 months but within one year,
acquisition and construction of PPE.
such investments are classified as short-term financial
asset or temporary investments and presented as CLASSIFICATION OF CASH FUND
current assets.
 Should be parallel in the classification of the related
- If the term is, such investments are more than 1 year
liability.
classified as non-current or long term investment.
- Example, sinking fund that is set aside to pay a bond
- If such investments become due within one year from
payable shall be classified as current asset when due
the end of the reporting period, they are reclassified as
within one year after the end of the reporting period,
current or temporary investments.
part of cash and cash equivalent
FOREIGN CURRENCY - Preference share Redemption fund – depende kung
current or not, pag current part of cash.
 Should be translated to Philippine Pesos using current
 Cash fund set aside for the acquisition of a noncurrent
exchange rate.
asset, future expansion for PPE. should be classified as
 Deposits in foreign currency which are not subject for
noncurrent regardless of the year of disbursement.
foreign exchange restriction are included in cash.
 Cash Fund set aside for current purpose – part of cash
 Deposit in foreign bank subject to foreign restriction
should be classified as non-current assets.
 IF material and restricted – Part of NCA
 If Immaterial and restricted – part of C&CE
BANK OVERDRAFT – mas madami kang inissue na check kesa  An overdraft can also be offset against the other bank
sa naka deposit account if the amount is not material.
 Under, bank overdraft can be offset against IFRS other
 Credit Balance CASH IN BANK
bank account when payable on demand and often
- -Results of from the issuance of checks in excess of the
fluctuates from positive to negative as an integral part
deposits.
of cash management.
 Classified as current liability
 NOT TO BE OFFSET against other bank accounts with COMPENSATING BALANCE
debit balances from the same bank. EXAMPLE:
 Generally takes the form of or minimum checking
a. Cash in Bank – First bank, which is overdrawn by
demand deposit account balance that must be
10,000
maintained in connection with a borrowing
b. Cash in Bank – Second Bank, with a debit balance
arrangement with a bank.
of
100,000. Example:
Net Cash Balance is 90,000. Entity borrows P 5,000,000 from a bank and agrees to
maintain a 10% or 500,000 minimum compensating balance in
 It is not necessary to adjust and open a bank overdraft
a demand deposit account.
accounting the ledger.
 In other words, Cash in Bank – First Bank account is  In effect, this arrangement results in the reduction of
maintained in the ledger with a credit balance. the amount borrowed because the compensating
 Overdrafts are not permitted in the Philippines. balance provides a source of fund to the bank as
partial compensation for the loan extended.
EXCEPTION TO THE RULE ON OVERDRAFT.
 Naka charge to normally sa cash in bank account.
 When an entity maintains two or more accounts in one  If silent, assume as not legally restricted.
bank and one account results in an overdraft, such
CLASSIFICATION OF COMPENSATING BALANCE
overdraft can be offset against the other bank account
with a debit balance in order to show cash, net of bank  Pag as to withdrawal yung amount ng legally
overdraft or bank overdraft, net of other bank account. restricted compensating balance, I miminus siya sa
Cash in Bank account.
 - it will be classified as “cash held as - Recording- accountant
compensating balance” under current - Custody- treasurer
assets if the related loan is short term.
2. Imprest System
- If Long term, compensating balance is
classified as noncurrent investment. √ All cash receipts should be deposited
 Pag as to withdrawal yung amount ng not legally
√ All disbursements should be made through checks except for
restricted compensating balance, hindi siya ileless sa
petty expenses which should be made through establishment
cash in bank. (in effect, part siya ng cash)
of Petty Cash Fund.
Possible Questions:
3. Bank Reconciliation– monthly reconciliation of cash
1. What is the correct amount of Cash? balance recorded in the book and cash balance reflected in
the cut-off bank statement
a. Cash only, not included si cash equivalents.
4. Periodic Cash Counts– check and balance of recorded cash
2. What is the correct amount of cash in the notes to financial
balance in the books and the actual amount of cash in
statements?
custody.
a. Cash only, not included si cash equivalents
5. Lockbox– speeds up and ensures daily deposit of cash
3. What is the correct amount of cash in the SFP? collections.

a. Cash and Cash Equivalents 6. Voucher System– control over cash disbursements which
ensures that all disbursements are authorized and properly
4. What is the correct amount of cash and cash equivalents?
recorded through the use of vouchers.
a. Cash and Cash Equivalents
7. Maintaining Optimum Cash Balance- balance is just enough
to meet specific business disbursement requirements such as
taxes and current operations such as interests and payroll
INTERNAL CONTROLS OVER CASH
dues
1. Segregation of Incompatible Duties
- minimizes the risk of embezzlement.
- Authorization- manager
- Execution- concerned department
COMMON EMBEZZLEMENT TECHNIQUES √ Performing of cut-off procedures
1. Lapping– occurs when collection of receivables from one
customer is misappropriated and then concealed by applying a
PETTY CASH FUND ACCOUNTING
subsequent collection from another customer.
Petty Cash Fund– money set aside to defray small/petty
Commonly occurs when there is weak segregation of duties
expenses of the company.
such that record and custody is held by a single person.
Establishment/Addition:
HOW TO DISCOVER?
Petty Cash Fund
√ Confirmation
Cash in Bank
√ Analytical Procedures
- check is usually drawn to the order of the Petty Cash
2. Kiting– occurs by overstating the balance of cash by
Custodian
utilizing the use of check floats.
- amount is fixed and supported by a board resolution
HOW TO DISCOVER?
Payment of Expenses:
√ Preparation of bank transfer schedule
No entry. Petty cash payments are recorded in a log book
√ Obtaining cut off bank statement
called “petty cash register” and are supported by petty cash
√ Preparation of Proof of Cash vouchers which are approved by PCF custodian and immediate
supervisor of requester. Requester signs the voucher to
3. Window Dressing– fraudulently overstating assets by
acknowledge the receipt of amount indicated.
either:
- Signatory need not be as high controlled as other regular
a. Incorporating receipts of next period in the current period
disbursement vouchers since expenses for PCF are normally
by leaving the books open even after year-end.
predetermined.
b. Recording the disbursement of the current period in the
Replenishment of Balance:
next period to understate outflow of resources.
HOW TO DISCOVER?
Expenses PETTY CASH COUNT PROBLEMS
Prepaid Expenses · Accountability
Receivables 1. Imprest Balance of PCF
Cash short (over) 2. Other collections which are NOT INTACT
Cash in Bank 3. Change in Advances for expenses
- Replenishment is made thru a regular CDV hence all · Valid Supports – VER
expenses are journalized in this phase.
1. Valid Cash Items
- Replenishment check is equal to the amount enough to bring
 Currencies/Bills and Coins
back the PCF to its fixed imprest balance. The check is again
 Good Checks
payable to the order of the PC Custodian.
 Expenses incurred after cutoff date
- All supporting documents which were replenished are then
2. Adjustment to Expense Accounts
surrender to accounting department.
 Only up to cut-off date
Adjustments:
When PCF is not replenished at the reporting period, the 3. Adjustment to Receivables
balance of PCF must be lowered down to the amount of the  IOUs
actual bills and coins left.  Petty Cash Shortage

Expenses Adjusted PCF balance

Prepaid Expenses Valid Cash Items
Receivables -(Other collection)
Cash short (over) Adjusted PCF balance (VCI PCF)
Petty Cash Fund
Shortage  Collections already recorded by the depositor as cash
receipts but not yet reflected on the bank statement. It
Valid Supports + Expense + Receivables
includes:
(Total Accountability)  Collections already forwarded to the
bank for deposit but too late to appear
Shortage
in the bank statement.
Adjusted PCF  Undeposited collections or those still in
the hands of the depositor. In effect,
Imprest Balance
these are awaiting cash on hand
(VCI PCF) delivery to bank for deposit.

Adjusted PCF OUTSTANDING CHECKS

Receivables Checks already recorded by the depositor as cash

disbursements but not yet reflected on the bank statement. It
Receivables + shortage
includes:
BANK RECONCILIATION
 Checks drawn and already given to payees but
Book Reconciling Items not yet presented for payment.
 Certified Check – one where the bank has
 Credit Memo
stamped on its face word “accepted” or
 Debit Memo
“certified indicating sufficiency of fund”
 Errors
 When the bank certifies a check, the
Bank Reconciling Items account of the depositor is immediately
debited or charged to insure the
 Deposit in Transit
eventual payment of the check.
 Outstanding Checks  SHOULD BE DEDUCTED FROM THE
 Errors TOTAL OUTSTANDING CHECKS (if
DEPOSIT IN TRANSIT included therein) because they are no
longer outstanding for Bank Recon.
CREDIT MEMOS ( Bank Receipts) or countersignature, erasures not
countersigned, mutilated checks, conflict
 Items that are not deposits by the bank to the account
between amount in words and amount in
credited of the depositor but not yet recorded by the
figures.
depositor as cash receipts.
- Bank Service Charges – bank charges for
 Has the effect of increasing the bank balance.
interest, collection, checkbook and penalty.
 Typical examples of credit memos are:
- Reduction of loan – amount deducted from the
- Notes Receivables collected by bank in favor of the
current account of the depositor in payment for
depositor and credited to the account of the depositor.
loan which the depositor owed to the bank and
- Proceeds of bank loan credited to the account of the
which has already matured.
depositor.
- Matured time deposit transferred by the bank to the FORMS OF BANK RECONCILIATION
current account of the depositor.
1. Adjusted Balance Method – the book balance and the bank
DEBIT MEMOS ( disbursement) balance and the bank balance are brought to a correct cash
balance that must appear on the balance sheet.
 Items that are not checks paid by bank which are or
charged debited by the bank to the account of the 2. Book to Bank Method – the book balance is reconciled with
depositor but not yet recorded by the depositor as the bank balance or the book balance is adjusted to equal the
cash disbursement. bank balance.
 Have the effect of decreasing the bank balance. 3. Bank to Book Method – bank balance is reconciled with the
 Mga auto debits ganon. book balance or the bank balance is adjusted to equal the
 Typical examples of debit memos are: book balance.
- NSF or No Sufficient Fund Checks – checks
deposited but returned by the bank because of
insufficiency of fund. Other name is or “drawn PROFORMA OF RECONCILIATION
against insufficient fund” DAIF
- Technically Defective Checks – checks 1. ADJUSTED BALANCE METHOD
deposited but returned by the bank because of
technical defects such as absence of signature Book Balance
Add: Credit Memo
 Total ADJUSTING ENTRIES
Less: Debit Memo
Adjusting entries are prepared on book reconciling items
Adjusted Book Balance
only. This is because the bank reconciling items will be
corrected by the bank, of course.
Bank Balance
Add: Deposit in Transit To adjust credit memos:
Total
Cash
Less: Outstanding Checks
Adjusted Bank Balance Notes Receivable
Errors will have to analysed if it is deducted or add Interest Income
2. BOOK TO BANK METHOD Loans Payable
Time Deposit
Book Balance
Add: Credit Memo To adjust debit memos:
Outstanding checks
Expenses
Total
Less: Debit Memo Notes Payable
Deposit in Transit
Interest Expense
Bank Balance
3. BANK TO BOOK METHOD Bank Service Charge
Accounts Receivable
Bank Balance
Add: Deposit in transit Cash in Bank
Debit Memo
Total
Less: Outstanding Checks
Credit Memo
Book Balance
LOOKING FOR THE MISSING RECONCILING ITEMS  Literally involves 2 dates
 Same procedure as to 1 date bank recon.
1. Deposits in Transit
Undeposited Collections/DIT, beg *end of last month*
Formula of Book Balance
+ Total collections recorded in the books
Balance per book – beginning of the month xxx
(Deposits cleared in the bank)
Add: Book Debits during the month xxx
Deposit in Transit, ending
Total xxx
2. Outstanding Check
Less: Book Credits during the month (xx)
Outstanding Checks, beg
Balance per book – end of the month xx
+ Total disbursements recorded in the books
 Book Debits – refer to cash receipts or all items
(Checks encashed by the bank)
debited to the cash in bank account.
Outstanding Checks, end  Book Credits – credited cash disbursement or all items
to the cash account.
Formula of Bank Balance
NOTES in Answering Bank Recon/Proof of Cash
Balance per bank – beginning of the month xxx
Bank Debit/Bank Charge—decrease in bank balance
Add: Bank Credits during the month xxx
Bank Credit—increase in bank balance
Total xxx
Book Debit—increase in book balance
Less: Bank Debits during the month (xx)
Book Credit—decrease in book balance.
Balance per bank – end of the month xxx

PROOF OF CASH
TWO-DATE BANK RECONCILIATION
  Bank Credits – all items credited to the account of the Less: checks paid by the bank during the month (xx)
depositor which includes deposits acknowledged by
Outstanding Checks – end of the month xxx
bank and credit memos.
- In the absence of any statement to the contrary or if
the problem is silent, bank credits are assumed to be
deposits acknowledged by bank.
 Bank Debits – all items debited to the account of the RECEIVABLES
depositor which include checks paid by bank and debit
 Financial assets arising from contractual rights to
memos.
receive cash or other financial assets from other entity.
- In the absence of any statement to
contrary or if the problem is silent, bank Measurement
debits are assumed to be checks paid by
Initial Measurement: Fair market value + transaction cost
bank.
 For Accounts Receivable – Transaction Price
Formula of Deposit in Transit
 For Notes & Loans Receivable
Deposit in Transit – beginning of the month xxx  Interest is realistic- face value
 Interest is unrealistic- present value
Add: Cash Receipts deposited during the month xxx
Subsequent Measurement: Amortized Cost
Total deposits to be acknowledged by bank xxx
For Accounts Receivable – Accounts Receivable per ledger
Less: Deposits acknowledged by bank during the month (xx)
(Allowance for Bad Debts)
Deposit in Transit – end of the month xxx
(Allowance for Discounts)
(Allowance for Returns)
Formula of Outstanding Checks
AR, SFP
Outstanding Checks – beginning of the month xxx
AR per ledger/AR end- Gross
Add: Checks drawn by depositor during the month xxx
AR, SFP Dec 31,…- net amount
Total checks to be paid by the bank xxx
Net Realizable Value - Trade Note Receivables
- Discounted Trade Note Receivables
 The initial amount recognized for accounts receivable
- PDC from customers
shall be reduced by adjustments which in the ordinary
2. Non Trade Receivables
course of business will reduce the amount recoverable
- Advances to suppliers
from the customer.
- Accounts payable debit balance
 In estimating the net realizable value of trade accounts
- Claims from insurance companies/government
receivables, the following deductions are made:
- Deposits to guarantee performance/deposits to
 Allowance for freight charge
creditors
 Allowance for sales return
- Subscription Receivables
 Allowance for sales discount
- Advances to employees
 Allowance for doubtful accounts
- Receivables from employees (Shortage, Employees
PRESENTATION NSFC)
- Interest/Dividend Receivable
Accounts Receivable- normally current
- Advances/Loans to key personnel
Notes & Loans Receivable- may be current or noncurrent  Shareholders
 Officers non trade,
o If trade: current
 Subsidiaries non current
o If non trade realizable w/in 12 months: current  Affiliates
o Not realizable w/in 12 months: noncurrent
Classification
COMPOSITION
 Trade Receivables – if expected to be realized in cash
1. Trade Receivables- claims arising from sale of within the normal operating cycle one year or
merchandise or service in the ordinary course of whichever is longer, are classified as current assets.
business.  Nontrade Receivables – if expected to be realized in
- Accounts Receivables cash within one year, the length of operating cycle
- Assigned AR notwithstanding, are classified as current asset.
- Factored receivables with recourse
- Instalment receivables
 - If collectible, beyond one year Allowance Accounts Receivable
nontrade receivables are
 Sales Discount Forfeited
classified as noncurrent assets.
 An entity shall classify an asset as current when the Accounts Receivable
entity expects to realize the asset or intends to sell or
Sales Discount Forfeited
consume it in the entity’s normal operating cycle, or
when the entity expects to realize the asset within 12  Freight prepaid for FOB shipping point
months after the reporting period.
Accounts Receivable
Cash

 Unpaid freight on FOB destination

Accounts Receivable
Freight Out
 Credit Sales
Accounts Receivable
Accounts Receivable
 Collection from credit sales
Sales
Cash
 Dishonoured/Overdue Notes Receivable
Accounts Receivables
Accounts Receivable
 Write Offs
Notes Receivable
Allowance
 Recovery
Accounts Receivable
From present period: Allowance
 Sales Returns and Allowances
Accounts Receivable
Sales Returns and Allowances
Current period:
Accounts Receivable
Accounts Receivable Cash
 Accounts Receivable 100,000
Sales 100,000

 Sales Discount  Assume collection is made within the discount period

Sales Discount Cash 95,000
Accounts Receivable Sales Discount 5,000

 Recovery (if not yet included in collection) Accounts Receivable 100,000

Cash  Assume collection is made beyond the discount period.

Accounts Receivable Cash 100,000
Conversion/Settlement with Notes Receivable Accounts Receivable 100,000
Notes Receivable Illustration – Net Method
Accounts Receivable  Sale of merchandise for P100,000 terms 5/10, n/30.
DISCOUNTS
TRADE DISCOUNT Accounts Receivable 95,000
 Not recorded in any accounting records/book Sales 95,000
 Based on list price
 Assume collection is made within the discount period.
Methods of recording credit sales
Cash 95,000
 Gross Method – recorded at gross amount.
Accounts Receivable 95,000
 Net Method – recorded at net amount
 Assume collection is made beyond the discount period
Illustration – Gross Method
Cash 100,000
 Sale of Merchandise for 100,000, terms 5/10, n/30.
 Accounts Receivable 95,000 Gain on Recovery
Sales Discount forfeited 5,000 Cash
Accounts Receivable
Allowance Allowance Method
Gross AR + Net Sales + Allowance Provision: Credit Sales x % of uncollectibility
Bad Debts Expense
BAD DEBTS/UNCOLLECTIBLE ACCOUNTS Allowance for Bad Debts
ALLOWANCE - Write offs
Write off Beginning Balance Allowance for Bad Debts
Recovery Accounts Receivable
Bad Debt Expense - Recovery
Ending Balance- Accounts Receivable
required ending balance of AR Allowance for Bad Debts
Cash
Direct Method Accounts Receivable
Bad Debts Expense 4 Types of Receivables Financing
Accounts Receivable  Loan Type
- Pledging
- Assignment
- Recovery  Sales Type
- Factoring
Accounts Receivable
 Default: without recourse- kapag binenta hindi - Receivable is used as collateral
ka na pwedeng balikan nung buyer ng Accounts - No reduction on AR balance (but
Receivable w/reclassification)
- Discounting - EQUITY OF ASSIGNOR in AR assigned
Default: with recourse- kapag hindi nasingil ng Assigned AR, Balance
bangko yung receivable sa client, company ang (Liability relating to assigned AR)
sisinglin. EQUITY OF ASSIGNOR
Without recourse- walang paki alam kahit hindi - 2 entries
masingil ng bangko
Incurrence of Liability
Pledging of Accounts Receivable
Cash
1. Pledge/Hypothecation/General Assignment
Finance Charge
- Ipinangako yung AR pero hindi mo naman sinabi
directly kung alin don sa AR yung ipinangako Notes Payable
mong ipangbabayad
Reclassification
- Receivable is used as collateral only
- No reduction in AR balance AR- assigned
- AR pledged should be disclosed in notes
Accounts Receivable
- Only one entry is prepared
Factoring of Receivables
Cash
3. Factoring of Receivables
Finance Charge
- Default: without recourse
Notes Payable

AR Factored
(Factoring fee)
Specific Assignment of Accounts Receivable
(Other charges)
2. Specific Assignment Net selling price
- Inassign na yung pinangakong accounts (CV of AR factored)
receivable Loss from factoring
 +Loss from recourse obligation if any Present Value Ordinary Annuity (installment)
Total Loss from Financing
Equal installment & equal intervals
PVSP – 1 (+/-)
Discounting of Notes Receivable
Rate
4. Discounting: Default- with recourse
Notes and Loans Receivables
Steps in Discounting
Valuation of Notes Receivable
Interest= Principal x Rate x Time
 Interest Bearing Notes Receivable
Maturity Value= Principal + Interest - If stated/nominal rate = effective/market
rate
Discount= Maturity Value x Discount Rate x Discount Period
Present value = face value
Proceeds= Maturity value-Discount
- If stated/nominal rate < effective/market rate
Present value = face value – discount
Proceeds
- If stated/nominal rate > effective/market rate
(CV of Notes Discounted)- principal + interest on holding
period Present value = face value + premium
Gain or Loss on Discounting

Time Value of Money- interest  Non Interest – Bearing Notes Receivable

Nominal rate- nakalagay sa face value ng instrument PV of Note:
Present Value Single Payment (receive in lump sum) Face Value x PV factor
= 1.r ÷÷=====
 Use PVSP if receive once
If three instalment but will it be equal, will it be periodic if
yes use PVOA
Interest Income (SCI)
Impairment of Notes Receivable
PV of Note, beginning of the year
 General Approach
xEffective Interest Rate
Interest Income for the year
Stage 1. Allowance for Impairment is recognized based on 12
Interest Receivable = 0
months expected credit loses.
Expected Lifetime Credit Losses at PV (using discount rate)
 Interest Bearing Notes Receivable
xDefault rate for 12 months
PV of Note:
Required Balance of Allowance
Face Value x PV Factor
Entry: Impairment Loss
+ Nominal Interest x PV Factor
Allowance for Impairment
Present Value of Notes
If expected credit losses or credit risk does not significantly
Interest Income (SCI) change through the term of the notes, allowance is increase
by the discount rate.
PV of Note, beginning of the year
Stage 2. Required Balance for impairment is recognized based
Xeffective Interest Rate
on Present Value of Expected Lifetime Credit Losses
Interest Income for the year
Stage 3. Receivables are individually assessed for credit
Interest Receivable in Balance Sheet impairment. Those credit impaired notes receivable together
with their related contra and adjunct accounts are
Face Value x Nominal rate = Nominal Interest
derecognized and a Restructured Note is recognized.
When are we going to receive the payment/cash flow?
Carrying Value of Note (including accrued interest, net
allowance)
-PV of estimated cash flow using original effective rate
Impairment Loss

ECL over the life at PV = Required balance of Allowance for

Impairment