Trade and Other Receivables
Trade Accounts Receivables
 Refers from sales of merchandise the ordinary course of business. This are
receivables from customers.
 Expected to be realized in cash within the normal operating cycle or one
year whichever is long term are classified as current asset.
 Since trade receivables is commonly collectible within one year, it is
commonly recorded at face amount at initial recognition
 Ways in computing the ending balance of trade accounts receivables:
1. Unadjusted ending to adjusted ending
1. Beginning AR to Ending AR.
Beginning AR to Ending AR.
Accounts Receivables
Beginning
Credit Sales
Collection
Recovery
Collection of
recovery
Write Off
Return
Discount
Ending
Unadjusted to Adjusted
A/R Ending-Unadjusted
XX
Reversal of NSF Check
XX
Customer’s credit balance XX
Goods in transit
X(X)
A/R Ending-Adjusted
XX
Journal Entries
Credit Sales
Dr. A/R
xx
Cr. Sales
xx
Collection of AR
Dr. Cash
xx
Cr. A/R
xx
Write Off
Dr. Allowance for BD xx
Cr. A/R
xx
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Trade and Other Receivables
Recovery
Dr. A/R
xx
Cr. Allowance for BD
Dr. Cash
xx
xx
Cr. A/R
xx
Return
Dr. Sales return
xx
Cr. A/R
xx
Expected Return
Dr. Sales return
xx
Cr. Allowance for Sales return
xx
Discount taken
Dr. Sales Discount
Cr. A/R
xx
xx
Expected discount
Dr. Sales Discount
xx
Cr. Allowance for Sales disc.
xx
Customer’s credit balance
 Customer’s account represents accounts payable for each supplier-normal
balance is credit.
 If customer’s account turned out to have a debit balance-this resulted from
overpayment from customer by the company
 Overpayment by the company to customer should be presented as
receivable (advances from customer).
 Receivables from one customer should not be offset to payable from other
customer.
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Trade and Other Receivables
Goods in Transit
AR should be recorded or not?
With transfer title (should be
recorded)
 FOB Shipping point
 FOB Seller
 FOB CID/FAS
Without transfer title (should
not be recorded)
 FOB destination
 FOB Buyer
 FOB ex-ship
Already recorded
No Adjustment
Add
Deduct
No Adjustment
Sequence of Computation:
1.
2.
3.
4.
5.
Accounts Receivable- Ending balance
Allowance for Bad Debt- Ending Balance
Bad Debt Expense
Net Realizable Value (NRV) of Accounts Receivables
Net Receivable Financial Statement Presentation
Allowance for Bad Debt
1. Write off-Receivable that was definitely uncollectible (deemed worthless)
2. Allowance of receivable-portion of ending receivable that is expected not
to be realized because the customer is:
a. Expected to default (allowance for bad debt)
b. Expected to return the goods (allowance for sales return)
c. Expected to take the discount (allowance for sales discount)
d. Expected to take the discount (allowance for sales discount)
e. Expected to offset the freight paid in behalf of the company
(allowance for freight)
3. Bad debt Expense-Portion of sales on account but expected not to be
realized because of the customer’s default. (provision of BD)
4. Recovery of write off-receivable that was believed to be definitely
uncollectible but was subsequently recovered by the company.
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Trade and Other Receivables
5. NRV of the receivable-portion of receivable that is expected to be realized.
Estimating Bad debt
 Percentage of A/R
1. Allowance for Bad debt
2. BD expense
 Percentage of Sales
1. BD Expense
2. Allowance for BD
 Aging of AR
1. Allowance for BD
2. BD Expense
METHOD 1: Percentage of A/R (balance sheet method)
1st
Percentage of A/R
A/R Ending-Adjust
(x)Percentage of Uncollectible
Allowance for BD, End
xx
X%
xx
If not given:
Allowance of BD, Beg / AR, Beg = Percentage of Uncollectible
Write off-Recovery/sales= Percentage of Uncollectible
2nd
Allowance for Bad Debt
Beginning
Write Off
Recovery
BD Expense (squeeze)
Ending
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Trade and Other Receivables
METHOD 2: Percentage of Sales (income statement method)
1st
Percentage of Sales
Net Credit sales
Percentage of uncollectible
BD Expense
Xx
x%
xx
2nd
Allowance for Bad Debt
Beginning
Write Off
Recovery
BD Expense (squeeze)
Ending
METHOD 3- Aging of Accounts Receivables
1st
Aging of Accounts Receivables
Group 1
Group 2
Ending A/R
xx
xx
Percentage of Uncollectible X%
X%
Total
xx
X%
Allowance for BD, end
XX
xx
xx
2nd
Allowance for Bad Debt
Beginning
Write Off
Recovery
BD Expense (squeeze)
Ending
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Trade and Other Receivables
Combination of 2 method in estimating Bad Debts
Methods in Estimating BD
Interim FS (not full year of FS)
 Percentage of Sales
Year-End FS
 Aging of Accounts receivable (more accurate)
NRV, Amortized Cost, Carrying amount, book value
AR, end
Allowance for BD
Allowance for Sales return
Allowance for sales discount
Net Realizable Value of A/R
xx
(xx)
(xx)
XX
A/R, end (with chance of avail disc)
Discount Rate
Portion of expected to take the discount
Xx
X%
X%
Allowance for sales discount
xx
Allowance Method
Bad debt loss is recognized when account
is doubtful
Direct write off method (taxation purpose)
Bad debt loss is recognized when account
proved worthless or uncollectible
Conforms with matching principle
GAAP requires the use of allowance
method
Violates matching principle
Direct write off method is not permitted
under PFRS
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Trade and Other Receivables
Allowance Method
Direct write off method
Journal Entry-account is considered doubtful
Dr. BD Expense
No entry
Cr. Allowance for BD
NRC of receivable(decrease)
NRV of receivable (no change)
Net Income(decrease)
Net Income (no change)
Journal Entry-account is proven worthless
Dr. Allowance for BD
Dr. BD Expense
Cr. Accounts Receivable
Cr. Accounts Receivable
NRV of receivable (no change)
NRV of receivable (decrease)
Net Income (no change)
Net Income (decrease)
Journal Entry- account is recovered and collected
Dr. Accounts receivable
Dr. Accounts receivable
Cr. Allowance For BD
Cr. BD expense
Dr. Cash
Cr. Accounts receivable
NRV of receivable (decrease)
Net Income (no change)
Dr. Cash
Cr. Accounts Receivable
NRV of receivable (no change)
Net Income (increase)
Presentation
 The trade receivables and nontrade receivables which are currently
collectible shall be presented on the face of the statement of financial
position as one line item called trade and other receivables.
Accounts Receivable, Notes receivable.
 Trade
o current asset
 Non trade
o if collectible in within one year, current asset
o if not collectible within one year, non-current asset
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Trade and Other Receivables
Subscription receivable
 if collectible in within one year, current asset
 if not collectible within one year, shareholders’ Equity (silent)
Advance to
 if collectible in within one year, current asset
o Silent: Employees, officers, customers, suppliers.
 if not collectible within one year, non-current asset
o Silent: Shareholders, Associates, Affiliates. Subsidiaries
Receivable presentation
Current Asset
Non-Current Asset
 Security deposit of a lease contract
 Special deposit on contract bids
Accrued Income
 Rent income
 Interest receivable
 Commission receivable
 Dividend receivable
PDC, NSF check, stale check
Debit balance of supplier’s account
Loans receivable
Claims from common courier
Claims from insurance
Accounts receivable unassigned, assigned and
pledged.
Allowance for bad debt, discord, and return
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