RECEIVABLES

Short term receivables

represent claims that are expected to be settled by receipt of cash

2 Clasiffications

Trade: claims arising from sale of goods and services in the normal course of
business
Ex: Accounts Receivable AR & Notes Receivable NR

Non-Trade: claims arising from sources other than from sale of goods or
services in the normal course of business
Ex: Advances to officers and employees, advances to affiliates, advances to
suppliers, subscription receivables (can appear in the Balance sheet Asset)
and also in Equity) , creditors account with debit balances, deposits, accrued
income & claims

Subscription Receivables: collected in 1 year balance sheet Asset) ; more

than 1 year (equity)

RECEIVABLES 1
 PRESENTATION

Current receivables are presented on the face of the statement of financial

position as one line item called "trade and other receivables"

The details or the breakdown shall be disclosed in the "notes to the financial
statements

Customer's credit balances

these are credit balances in accounts receivable resulting from overpayments,

returns and allowances, and advance payments from customers

should be classified as CURRENT LIABILITIES and are not offset against the
debit balances in other customers' accounts, EXCEPT when the same is
immaterial

Illustration:

RECEIVABLES 2
 a. Compute the correct amount of accounts receivables

b. Prepare one compound entry to adjust the accounts receivable

c. Compute the amount to be presented as "trade and other receivables" under

current assets

d. Indicate the classification and presentation of the other items

Subscription Receivable should be deducted from subscribed share capital

Deposit on contract should be classified as non-current and presented as

other non-current asset

Advances to affiliates should be classified as non-current and present as long

term investment

RECEIVABLES 3
 Initial Measurement

accounts receivable are initially measured at fair value

Fair value is usually the transaction price. For short term receivables, this is
equal to the face amount or original invoice amount

Subsequent Measurement

Accounts receivable shall be measured at amortized cost

For short term receivables, amortized cost is usually the net realizable value

Net realizable value

allowance for freight charge

allowance for sale return

allowance for sales discount

allowance for doubtful accounts

The following information relate to accounts receivable:

Required:

 Compute the accounts receivable at year end

 Compute for the net realizable value of accounts receivable at year end

RECEIVABLES 4
 Accounting for Freight

Who should pay? The one who records the expense)

FOB Destination - SELLER

FOB Shipping point - BUYER

Who initially paid? The one who recorded the cash outflow)

Freight collected - BUYER

Freight prepaid - SELLER

Illustration:
An entity sold P10,000 merchandise on account. Cost of shipping is P150

RECEIVABLES 5
 Discount
2 Kinds of Discount

Trade Discount (volume or quantity discount): Used to encourage higher

volume of sales

Cash Discount (sales discounts): used to induce prompt or early payment of

an account

Accounting for Trade Discounts

Not recognized for financial reporting purposes

Illustration:
Assume that on July 16, 2020, ABC Manufacturing sells merchandise on account
with a list of price of P100,000, less trade discounts of 10%, 10%, and 5%. The
invoice price of the merchandise is computed as follows:

Accounting for Cash Discounts

Cash discounts are expressed in terms. For Example:

2/10, n/30 2% discounts is granted if account is paid within 10 days from
invoice date, due in 30 days)

10/10, 5/20, n/eom 10% discounts is granted if account is paid within 10

days from invoice date, 5% discount is granted if paid within 20 days, due
at the end of the month)

Cash discounts are recorded unlike trade discounts

RECEIVABLES 6
 Recording depends on any of the following method: Gross Price method; Net
Price method; and Allowance method

Gross Price Method

Cash discounts are recognized when taken

Under this method, both AR and Sales are initially taken recorded at Gross
Sales with no recognition of the available discount until it is actually taken

Illustration:

Assume sale of merchandise for P100,000, terms 5/10, n/30. The entry to record
the transaction is:

Assume collection is made within the discount period:

Assume collection is made beyond the discount period:

Net Price Method

Cash discounts are recognized when not taken

Under this method, both the AR and Sales are initially recorded at sales price
less the cash discounts

Illustration:

RECEIVABLES 7
 Assume sale of merchandise for P100,000, terms 5/10, n/30. The entry to record
the transaction is:

Assume collection is made within the discount period

Assume collection is made beyond the discount period:

Allowance Method

Cash discounts are recognized when offered

Under this method, AR is recorded at Gross, while Sales is recorded at NET

An allowance is set up for the cash discount

Illustration:
Assume sale of merchandise for P100,000, terms 5/10, n/30. The entry to record
the transaction is:

Assume collection is made within the discount period:

RECEIVABLES 8
 Assume collection is made beyond the discount period:

Illustration:

The following transactions were made completedby CPA Company in December

2020

DEC 9 - Sold merchandise to BSA Company under credit terms of 2/10, n/30.
The list price is P120,000, less 10%, less 5%

DEC 10 - Sold merchandise to BSIA Company, P50,000, 2/10, n/30

DEC 19 - Collected the account of BSA Company in full

DEC 26 - Sold merchandise to ABM Company, P40,000, 2/10, n/30

Required: Journalize the foregoing transactions using the 3 methods of

accounting for discounts. Prepare also any appropriate adjusting entry at
December 31. ABM Company paid uts account in full on January 5, 2021, while
BSIA Company paid its account in full on January 9,2021

Gross Price Method

RECEIVABLES 9
 Net Method

RECEIVABLES 10
 Allowance Method

RECEIVABLES 11
 Credit Card Sales

AR in the name of the card-issuing companies

The credit card company will now be the one liable to pay the seller and
absorbs the risk of non-payment by th buyer

As compensation, the credit card company charges the buyer credit card fees,
normally ranging from 1% to 5%

Illustration:

A customer used Visa credit card to pay for P25,000 worth of merchandise. The
entry to record the sale is:

RECEIVABLES 12
 Subsequently, Visa remitted the sales reduced by the credit card fee of 2%
(assumed rate). The entry to record the transaction is:

RECEIVABLES 13