RECEIVABLES contractual right to collect cash or something. MOM - Meeting of Minds Accounting - Financial Asset that represent a contractual right to receive cash or another financial asset from another entity. TRADE or NON TRADE Trade Receivables -claims arising from sale of merchandise or service in the ordinary course of business. Trade Accounts Receivable - open accounts arising from the sale of goods and services. - Ordinary Customers Account Trade Notes Receivable - Formal promise to pay in the form of notes Non Trade Receivable Claims arising from sources other than sale of merchandise and services Loans Receivable For Banks or other financial Institutions, loans to customers CLASSIFICATION Current Asset Trade Receivable Non Trade/ Notes/ Loan Receivable, collectible within 1 year or normal operating cycle Non Current Asset Non Trade Receivable, Collectible more than 1 yr or normal operating cycle. NON TRADE RECEIVABLES Current Assets 1. Advances to or Receivable from related parties: - Shareholders Non Current Assets 1. Advances to or Receivable from related parties: - Shareholders - Directors - Employees - Officers (Collectible within 1 yr) 2. Advances to Supplier 3. Subscription Receivables (Collectible within 1 yr) 4. Creditor's Account 5. Accrued Income Rent Receivable Interest Receivable Royalty Receivable - Directors - Employees - Officers 2. Advances to Affiliates 3. Special Deposits on Contracts An item is sold to a credit customer under terms of 2/15 and net 30, FOB shipping point terms with a list selling price of P2,000,000 with trade discounts of 20% and 10%. The Invoice price is computed as follows: 2% Sales Discount 15 Discount Period 30 Credit Period 20% Trade Discount 10% Trade Discount Gross Method Upon Sales Accounts Receivable Sales List Price Less: 20% TD Net Less: 10% TD Invoice Price Sales Discount 2M (400K) 1.6M (160K) 1.44M -28800 1411200 Net Method 1.44M 1.44M Accounts Receivable Sales Recording of Collection Within Discount Period Cash Sales Discount AR Beyond Discount Period Cash AR 1411200 Cash 28.8K AR 1.44M 1.44M Cash 1.44M AR Sales Discount Forfeite Sales Returns and Allowances - Returned or Possible Defect of goods sold that will result to reduction of receivable - Cash Sales will not affect the balance of AR Upon Credit Sales Accounts Receivable Sales xx Upon Return of Goods Sales Return and Allowances Accounts Receivable xx xx xx Writing Off of a Receivables ( Estimation of Collectibility of Receivables) Allowance Method 1. Estimation of Doubtful Account Doubtful Account Expense Allowance for DA 2. Writing Off of an account Allowance for DA Accounts Receivable Direct Write Off Method xx No Entry xx xx xx 3. Recovery of an Account previously Written Off Accounts Receivable xx Allowance for DA xx Bad Debt Expense Accounts Receivable Accounts Receivable Bad Debt Expense Cash xx Cash Accounts Receivable xx Accounts Receivable FACTORING OF RECEIVABLES - Factored = Sold Cash xx Accounts Receivable xx SUMMARY OF EFFECTS Beginning Balance Recovery of Account Credit Sales xx xx xx Gross AR xx ACCOUNTS RECEIVABLE xx xx xx xx xx xx xx xx xx NRV AR xx Net Realizable Value - Accounts Receivable ESTIMATION OF ACCOUNTS RECEIVABLE THREE METHODS OF ESTIMATION DOUBTFUL ACCOUNTS 1. Percentage of Net Credit Sales Sales Discount Sales Return and Allow Write Off Collection of Accounts Factored Accounts Allowance for Doubtfu Allowance for Sales Dis Allowance for Sales Re Allowance for Freight Provides the Doubtful Accounts Expense for the year or a certain period Sample: The Company estimates that 2% of its Credit Sales for the year 2021 will be doubtful. T Cr Sales amounted to 2M pesos. Allowance for doubtful Accounts in the beginning of the to 50k pesos. Credit Sales Rate DAE 2,000,000 2% 40,000 Doubtful Account Expense Allowance for DA Matching Principle - emphasizes proper matching of Doubtful Account Expense to Credit 2. Percentage of Accounts Receivable Provides the balance of Allowance for Doubtful Accounts. Sample: The Company estimates that 10% of its Accounts Receivable for the year 2021 is Doubt Ending balance of AR amounted to 2M pesos. Allowance for doubtful Accounts in the beg to 50k pesos. AR Rate ADA, ending 2,000,000 10% 200,000 Doubtful Account Expense Allowance for DA PRO-FORMA COMPUTATION ADA, Beginning Write Off Recovery Balance b4 Adj. DAE ADA, Ending xx (xx) xx xx xx xx ADA, Beginning Write Off Recovery Balance b4 Adj. DAE ADA, Ending 3. Aging of Receivables - an analysis is made and each classification of accounts receivable is multiplied by a specific rat the estimate of uncollectability. -Provides the balance of Allowance for Doubtful Accounts. Sample Anda Corporation provided for uncollectible accounts receivable under the allowance method start of its operations to December 31, 2005. Provisions were made monthly at 2 percent of cr bad debts written off were charged to the allowance account; recoveries of bad debts previous off were credited to the allowance account; and no year-end adjustments to the allowance acc made. Anda's usual credit terms are net 30 days. The credit balance in the allowance for doubtful accounts was P260,000 at January 1, 2005. D credit sales totaled P18,000,000, interim provisions for doubtful accounts were made at 2 perc credit sales, P180,000 of bad debts were written off, and recoveries of accounts previously w amounted to P30,000. Anda installed a computer system in November 2005 and an aging of ac receivable was prepared for the first time as of December 31, 2005. A summary of the aging is Balance in Classifications by Month of Sale Estimated % Uncollectible Each Category November-December 2005 2,280,000 2% 2,280,000 July-October 2005 1,200,000 15% 1,200,000 January-June 2005 800,000 25% 800,000 Prior to January 1, 2005 260,000 80% 140,000 Based on the review of collectibility of the account balances in the "prior to January 1, 2005" category, additional receivables totaling P120,000 were written off as of December 31, 2005. with the year ended December 31, 2005, Anda adopted a new accounting method for estimatin allowance for doubtful accounts at the amount indicated by the year-end aging analysis of acco receivable. Allowance DA Accounts Receivable 120K Accounts Receivable Allowance DA 30K 120K 30K ADA, Beginning Write Off Recovery Cash 30K Accounts Receivable DAE 30K 360K ADA 360K Adjusting Entry Credit Sales Rate DAE Required Increase in ADA DAE 18,000,000 2% 360,000 187,600 187,600 ADA 187,600 Balance b4 Adj. DAE 2005 ADA, Ending Juan Printing Supplies Accounts Payable Upon Payment Accounts Payable Cash ts on Contracts Accounts Payable ABC Company - 100k Shares at 10 pesos pe -50k shares issued Juan - subscribed 5K Shares at 10pesos ABC Company Share Capital Paid Subscribed shipping point nd 10%. The Invoice 1440000 28800 1,411,200 1,411,200 1,411,200 1,411,200 1.44M 1,411,200 28,800 Sales Discount Forfeited xx Accounts Receivable xx xx xx xx Accounts Receivable xx Sales Discount Sales Return and Allowances Collection of Accounts including Recovery Factored Accounts Allowance for Doubtful Account Allowance for Sales Discount Allowance for Sales Return Allowance for Freight 021 will be doubtful. The 2021 n the beginning of the year amounted 40000 40000 ount Expense to Credit Sales the year 2021 is Doubtful. The 2021 ful Accounts in the beginning of the year amounted 150000 150000 50,000 50,000 150,000 200,000 tiplied by a specific rate of he allowance method since the thly at 2 percent of credit sales; of bad debts previously written s to the allowance account were at January 1, 2005. During 2005, s were made at 2 percent of ccounts previously written off 005 and an aging of accounts mmary of the aging is as follows: 45,600.00 180,000.00 200,000.00 112,000.00 537,600.00 ADA, Ending or to January 1, 2005" aging f December 31, 2005. Effective g method for estimating the aging analysis of accounts ADA, Beginning - 260,000 300,000 30,000 - 10,000 547,600 537,600 Pedro Papel 5K 5K 7K 7K Dr 2K k Shares at 10 pesos per share ares issued Shares at 10pesos 500K 450K 50K Subscription Receivable