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RECEIVABLES

This document provides an overview of accounts receivable, including: 1) It defines accounts receivable and distinguishes between trade and non-trade receivables. Trade receivables arise from the sale of goods and services, while non-trade receivables come from other sources. 2) It covers the classification and presentation of receivables, noting that currently collectible receivables are presented as a single line item called "trade and other receivables". 3) It discusses the initial and subsequent measurement of accounts receivable, stating they are initially measured at face value and subsequently measured at net realizable value through adjustments for items like allowances and doubtful accounts.

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Nath Bongalon
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104 views12 pages

RECEIVABLES

This document provides an overview of accounts receivable, including: 1) It defines accounts receivable and distinguishes between trade and non-trade receivables. Trade receivables arise from the sale of goods and services, while non-trade receivables come from other sources. 2) It covers the classification and presentation of receivables, noting that currently collectible receivables are presented as a single line item called "trade and other receivables". 3) It discusses the initial and subsequent measurement of accounts receivable, stating they are initially measured at face value and subsequently measured at net realizable value through adjustments for items like allowances and doubtful accounts.

Uploaded by

Nath Bongalon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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CHAPTER

CHAPTER 10
10
ACCOUNTS RECEIVABLE
TECHNICAL
KNOWLEDGE
 To be able to distinguish between trade receivables and
nontrade receivables
 To know the classification and presentations of receivables
 To know the initial and subsequent measurement of
accounts receivable
 To identify the adjustments necessary in determining the
net realizable value of accounts receivable
 To understand the gross method and net method of
recording credit sales
 To know the accounting for doubtful accounts, worthless
accounts written off and recoveries of accounts written off.
R E C E I VA B L E S Are financial assets that represent a contractual right to receive
cash or another financial asset from another entity

CLASSIFICATION OF
TRADE RECEIVABLES NONTRADE
RECEIVABLES
customer’s accounts, trade debtors, trade accounts receivable
RECEIVABLES
Claims arising from sale of merchandise or Claims arising from sources other than the
services in the ordinary course of business sale of merchandise or services in the
ordinary course of business
ACCOUNTS RECEIVABLE – are open
accounts arising from the sale of goods
and services in the ordinary course of
business and not supported by promissory
notes

NOTES RECEIVABLE – are those


supported by formal promises to pay in the
form of notes
C L A S S I F I C AT I O
N
TRADE NONTRADE
RECEIVABLES RECEIVABLES
CURRENT ASSETS – expected to be realized CURRENT ASSETS – expected to be realized
in cash within the normal operating cycle or in cash within one year, the length of the
one year, which ever is longer operating cycle notwithstanding

NONCURRENT ASSETS – if collectible


beyond one year

PAS 1, PARAGRAPGH
6

“ An entity shall classify an asset as current when the entity expects to realize the
asset or intends to sell or consume it in the entity’s normal operating cycle, or when the

”
entity expects to realize the asset within twelve months after reporting period.
! Currently collectible trade and nontrade receivables shall be presented on the face of the statement
of financial position as one line item called Trade and other receivables

Details shall be disclosed in the notes to


financial statements:
EXAMPLES
OF
NONTRADE E Creditors’ accounts may have credit
balances as a result of overpayment or
returns and allowances. These are classified as
R E C E I VA B L E S current assets.

A Advances to or receivables from


shareholders, directors, officers, or
employees. If collectible in one year, such F Special deposits on contract bids normally
are classified as noncurrent assets because
advances or receivables should be classified as such deposits are likely to remain outstanding for a
current assets. Otherwise, such advances or considerable long period of time. However, the
receivables are classified as noncurrent assets deposits that are collectible currently should be
classified as current asset

B Advances to affiliates are usually treated as

long-term investments
G Accrued income such as dividends
receivable , accrued net income, accrued
royalties income and accrued interest on bond

C Advances to supplier for the acquisition of


merchandise are current assets
investment are usually classified as current assets.

D
Subscriptions receivable are current assets
H Claims receivable such as claims against
common carriers for losses or damages,
claim for rebates and tax refunds, claims from
if collectible within one year. Otherwise,
subscriptions receivable should be shown insurance entities, are normally classified as
preferably as a deduction from subscribed share current assets.
CUSTOMER’
S
CREDIT
Are credit balances in accounts receivable resulting from
overpayments, returns and allowances, and advance
payment from customers
BALANCES
These are classified as noncurrent liabilities and not offset against the debit balances in other customer’s accounts,
except when the same is not material in which case only the net accounts receivable may be presented.

EXAMPLE Customer B

Accounts receivable controlling account report Sales 600, 000 Collections 450, 000
a balance of ₱ 500, 000. Examination of the 600, 000 Debit balance 150, 000
subsidiary ledgers reveals the following details
600, 000
in the customer’s accounts

Customer A Customer C

Sales 800, 000 Collections 400, 000 Sales 500, 000 Collections 450, 000
800, 000 Debit balance 400, 000 Credit balance 50, 000 Returns 100, 000
800, 000 550, 000 550, 000
INITIAL MEASUREMENT
O
ACFCOUNTS
RECEIBALE
PFRS 9, PARAGRAPH
5.1.1
Provides that a financial asset shall be recognized initially at fair value plus transaction
costs that are directly attributable to the acquisition.

The fair value of a financial asset is usually the transaction price, meaning the fair value
of he consideration given.
For short-term receivables, the fair value is equal to face amount or original invoice
amount.
Cash flows relating to short-term receivables are not discounted because the effect of
discounting is usually immaterial.
Accordingly, accounts receivable shall be measured initialy at face amoung or original
invoice amount.
SUBSEQUE
N T
MEASUREMEN
T
PFRS 9, paragraph 5.5.1, after initial recognition, accounts receivable shall be
In accordance with
measured at amortized cost.

The amortized cost is actually the net realizable value of accounts receivable.

The term “amortized cost” has more relevance in long-term note receivable

Thus, the term “net realizable value” is preferably used in relation to accounts receivable.

The net realizable value of accounts receivable is the amount of cash expected to be collected or
the estimated recoverable amount.
NET Initial amount recognized for accounts receivable shall be initially
REALIZAB L E reduced by adjustments which in the ordinary course of business
will reduce the amount recoverable from the customer.
V A L U E This is based on the established basic principle that assets shall not be carried at above
their recoverable amount.

In estimating the net realizable value of trade accounts receivable, the following deductions are made:

A Allowance for freight


charge B Allowance for sales
return C Allowance for sales
discount D Allowance for doubtful
accounts

TERMS RELATED TO FREIGHT


Shoulders
CHARGE Shoulders
Pays Pays
expenses expenses
FOB Shipping FOB Destination,
point, freight BUYER SELLE freight prepaid
SELLE SELLE
prepaid R R R
FOB Shipping BUYER BUYER FOB Destination,SELLE
BUYER
point, freight freight collect
ACCOUNTING
F
FO RI G H T
RE EXAMPLE
CHARGE
An entity has a ₱100, 000 account receivable at the end of accounting period.
The terms are 2/10, n/30, FOB destination and freight collect. The customer paid
freight charge of ₱5,000

To record collection
To record sale within discount period
Accounts receivable 100, 000 Cash 93, 000
Freight out 5, 000 Sales discount 2, 000
Sales 100, 000 Allowance for freight charge 5, 000
Allowance for freight charge 5, 000 Accounts receivable 100, 000
METHODS
O F
RECORDING
SALE

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