Receivables
Represent amount collectible from customers and others arising from:
o Sale of merchandise
o Claims for money lent; or
o Performance of services
Receivables usually consists of:
o Open accounts with customer for uncollected sales or revenues
o Advances to officers, employees, affiliates
o Claims against suppliers and insurance companies
o Other receivables from nonrecurring transactions
Receivables are financial assets that represent a contractual right to receive cash or another
financial asset from another entity.
*Note:
For banks and other financial institutions
1. Receivables result primarily from loans to customers
2. Loans are made to heterogenous customers
3. Repayment periods are frequently longer or over several years
Initial Measurement and Recognition
At fair value plus transactions costs that are directly attributable to acquisition or at amortized
cost
Short-term Receivables
Fair value => face value or original invoice amount
Undiscounted cash flows
Long-term receivable
Interest-bearing => fair value = face value
Non-interest bearing => amortized cost (present value)
Valuation (subsequent Measurement)
Net realizable value – expected amount to be collected (gross receivable - allowance for DA)
For lone-term notes receivable
o At amortised cost => non-interest bearing notes & notes with unreasonable interest rate
For foreign denominated receivable
o Translated to local currency at the rate of exchange on SFP Date (closing date).
Classification
1. Trade or non-trade (not necessary to classify)
a. Trade Receivables (ordinary course of transactions)
i. Accounts receivable
ii. Notes receivable
b. Non-trade (other sources of transaction besides the nature of business)
i. Sale of equipment receivables
2. Current or non-current
a. Current
i. Trade Receivables – reasonably expected to be collected within one year or
during the normal operating cycle whichever is longer.
ii. Non-trade Receivables – reasonable expected to be collected within one year
b. Non-Current
i. Trade Receivables - reasonably expected to be collected beyond one year or
beyond the normal operating cycle whichever is longer.
ii. Non-trade receivables - reasonable expected to be collected beyond one year
Non-trade Receivables Examples:
Other Notes
1. Credit balances in accounts receivable should be reclassified as liabilities (Sales Returns and
Advance Payments)
2. If receivables are hypothecated/pledged against borrowings, the amount of receivable involved
should be disclosed
3. In disclosing the specifically assigned accounts receivable, the assignor should report them as
part of accounts receivable with a disclosure of the amount assigned
Accounts Receivables
Most common collectible account
Short-term receivable that arise from ordinary course of the business
Open account (no formal written promise to pay or promissory note is required)
Factors affecting AR
Freight charges
o FOB shipping point; prepaid (buyer pay transportation charges) (increase AR)
o FOB destination point; collect (seller pay transportation charges) (decrease AR)
Sales returns and allowances
o Goods damaged or defective, of inferior quality, or do not meet specifications
Cash discounts – gross and net method
Bad debts
Recognition of AR
2 types of discounts
1. Trade discounts
a. Reduction in the retail price (list price/catalog price) of products that arises from bulk
shares or purchases
b. Often granted to wholesalers who buy in high volumes
c. Not recognized in accounting records
d. Customers are billed net of discounts
2. Cash discounts
a. Granted to customer for paying the account promptly (early)
b. Recorded as “sales discount” by a seller
c. Recorded as “purchase discount” by a buyer (if the periodic inventory is used)
d. Gross method vs Net Method
NET METHOD
*Debit balance in Allowance for Doubtful Accounts results from the direct write-off during the year is
higher than the beginning balance of Allowance for Doubtful Accounts.
*Estimated rates for AFDA are reviewed regularly to avoid inadequacy or excessiveness of Doubtful
Accounts
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