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