Chapter X: Accounts Receivable- - if collectible in one year, such advances or receivables

should be classified as current assets

Receivables - otherwise, such advances or receivables are classified
- financial assets that represent a contractual right to receive as noncurrent assets
cash or another financial asset from another entity b) Advances to affiliate
- are usually treated as long-term investments
for retailers or manufacturers: c) Advances to supplier for the acquisition of
Trade Receivables merchandise
- claims arising from sale of merchandise or services in the - are current assets
ordinary course of business d) Subscriptions receivables
- are current assets if collectible within one year
trade receivables include: - otherwise, they should be shown preferably as a
Accounts Receivable deduction from subscribed share capital
- open accounts arising from the sale of goods and services e) Creditor’s debit balances
in the ordinary course of business and not supported by - result of overpayment or returns and allowances
promissory notes - are classified as current assets
- other names: customer’s accounts, trade debtors, trade - if the debit balances are not material, an offset may be
accounts receivable made against the creditors’ accounts with credit
balances and only the net accounts payable may be
Notes Receivable presented
- supported by formal promises to pay in the form of notes f) Special deposits
- classified as noncurrent assets because such
Nontrade Receivables deposits are likely to remain outstanding for a
- represent claims arising from sources other than the sale of considerable long period of time
merchandise or services in the ordinary course of business - however, deposits that are collectible currently should
be classified as current assets
for banks and other financial institutions: g) Accrued income
Loans Receivable - such as dividends receivable, accrued rent income,
- loans are made to heterogeneous customers and the accrued royalties income and accrued interest on
repayment periods are frequently longer or over several bond investment
years - usually classified as current assets
h) Claims receivable
CLASSIFICIATION - such as claims against common carriers for losses or
Trade Receivables which are expected to be realized in damages, clai m for rebates and tax refunds, claims
cash within the normal operating cycle or one year, from insurance entities
whichever is longer, are current assets. - normally classified as current assets

Nontrade Receivables which are expected to be realized in NTR CA NCA/Others

A. If collectible in 1 year NCA: More than one year
cash within one year, the length of the operating cycle
B. NCA: Long-term investment
notwithstanding, are classified as
C. ✓
current assets.
Deduct from subscribed share
D. If collectible in 1 year
capital: More than one year
If collectible beyond one year, they are classified as E. ✓
noncurrent assets. F. If collectible in 1 year NCA: More than one year
G. ✓
H. ✓
PAS 1, Presentation of Financial Statements, paragraph
66:
Customer’s credit balances
“Any entity shall classify an asset as current when the entity
- credit balances in accounts receivable resulting from
expects to realize the asset or intends to sell or consume it in
overpayments, returns and allowances, and advances
the entity’s normal operating cycle, or when the entity expects
payments from customers
to realize the asset within twelve months after the reporting
- classified as current liabilities and are not offset against
period.”
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
EXAMPLES OF NONTRADE RECEIVABLES
a) Advances to or receivables from shareholders,
directors or employees
no adjustment is necessary but it may be made only for The journal entry to recognize the probable return:
worksheet purposes, meaning, not formally journalized and
Sales return xx
posted to the ledger, as follows: Allowance for sales return xx

Accounts receivable xx c. Allowance for sales discount

Customers’ credit balances xx

MEASUREMENT GROSS METHOD NET METHOD

initial: Sale of merchandise for 100,000, terms 5/10, n/30
PFRS 9, paragraph 5.1.1
AR 100,000 AR 95,000
- fair value + transaction costs Sales 100,000 Sales 95,000
- transaction price
- short-term receivables, face amount Assume collection is made within the discount period
Cash 95,000
Cash 95,000
Sales discount 5,000
subsequent: AR 100,000
AR 95,000
PFRS 9, paragraph 5.2.1
Assume collection is made beyond the discount period
- amortized cost (net realizable value)
Cash 100,000
- amortized cost: relevant in long-term receivable Cash 100,000 AR 95,000
AR 100,000 Sales discount
Net realizable value forfeited 5,000

accordingly, in estimating the net realizable value of trade

accounts receivable, the ff. deductions are made: The adjustment to record the expected sales discount:

Sales discount xx
a. Allowance for freight charge Allowance for sales discount xx

To record sale:

Accounts receivable xx d. Allowance for doubtful accounts

Freight out xx
Sales xx
Allowance for freight charge xx
ALLOWANCE METHOD DIRECT WRITEOFF METHOD

To record the collection within the discount period: Accounts of 30,000 are considered doubtful of collection
Doubtful accounts 30,000
Cash xx No entry
ADA 30,000
Sales discount xx
Allowance for freight charge xx Accounts subsequently discovered to be worthless or uncollectible
Accounts receivable xx
ADA 30,000 Bad debts 30,000
AR 30,000 AR 30,000
SELLER BUYER Accounts previously written off unexpectedly recovered
FOB destination, Freight collect
AR 30,000 AR 30,000
ADA 30,000 Bad debts 30,000

Cash 30,000 Cash 30,000

AR 30,000 AR 30,000
FOB destination, Freight prepaid

Doubtful accounts in the income statement

1. Distribution cost
FOB shipping point, Freight collect - the granting of credit and collection of accounts are
under the charge of the sales manager

2. Administrative expense
- the granting of credit and collection of accounts are
under the charge of an officer other than sales
FOB destination, Freight prepaid
manager
- in the absence of any contrary statement, doubtful
accounts shall be classified as AE

b. Allowance for sales return