Trade and other receivables
Myburgh hoofstuk/chapter 11
Learning outcomes
After completion of this lecture, you should be
able to:
• Apply the accounting treatment of debtors.
• Know when an asset is classified as a current
asset.
• To understand, calculate and disclose Credit
losses and Allowance for credit losses
Dad what is the difference
between a debtor and a creditor?
A debtor is a man who owes money.
AND
A creditor is the man who thinks he is
going to get it.
ACCF121 (PTY) LIMITED
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2015
Note
2015
2014
R
R
ASSETS
Non-current
assets
Property, plant and equipment
2
0
0
Intangible assets
3
0
0
Financial assets
4
0
0
Inventory
5
0
0
Trade and other receivables
6
0
0
Cash and cash equivalents
7
0
0
0
0
Current assets
Total assets
What is a current asset?
An asset is a current asset if it satisfies the following
criteria:
• it is expected to be realised in, or is intended for sale or
consumption in, the entity’s normal operating cycle;
• it is held primarily for the purpose of being traded;
• it is expected to be realised within twelve months after
the end of the reporting period; or
• it is cash or a cash equivalent (unless it is restricted in
use for at least 12 months after year-end).
Current assets
Current assets:
• Inventory
• Debtors
• Cash and cash equivalent
Credit policy
• How much credit may be given
to debtors
• Credit terms
• Settlement discount
• Levying of interest
Accounting records
General ledger
Debtors ledger
Debtors list
debtors control account
account for each debtors
list of DL balances
Regular reconciliation:
Debtors control with debtors ledger
Debtors with credit balances
Debtors with credit balances should be shown as
creditors.
IAS 1
Credit losses (bad debt)
A debtor's account is irrecoverable
settle his account.
debtor is unable to
Debtor is no longer an asset (no of future economic benefits).
That debtor must therefore be written off as an expense.
This expense is called credit losses.
Class example
Jeff Skilling is a debtor of PUK Traders and
owes R10 000.
However, Jeff Skilling has been sequestrated
and his estate paid 5 cents for each rand that
he owes.
Class example
Dr
Bank
500
Cr
Dr
Debtors
Credit loss (expense)
Cr Debtors
500
9 500
9 500
What happens if…
What happens if an entity expects that a
debtor is unable to settle his account (or
part thereof)?
Allowance for credit losses
Expected losses
In some cases an entity may have an expectation that a
debtor(s) may not be able to settle their debts. Since an
expectation already exists in that period, an expense (loss)
should be recognised.
Dr Credit losses(E)
Cr
Allowance for credit losses (A)
Set off against
debtors in
Financial
statements
Allowance for credit losses
Expected losses
This allowance is normally adjusted at the end
of every year to the expected credit losses
incurred.
Credit losses and VAT
Output VAT initially charged (e.g. at the time of the
sale), may be claimed as input VAT.
This may only be done once the debt has been written
off (confirmed as being irrecoverable).
Not with allowance
Credit losses and VAT
When an allowance for credit losses is created
for specific debtors, it is done at the amount
excluding VAT.
Presentation and disclosure
ABC Traders
Statement of financial position as at 29 February 2012
Note
R
Current assets
Trade and other receivables
7
49,000
Presentation and disclosure
ABC Traders
Notes for the year ended 29 February 2012
7. Trade and other debtors
Trade debtors
less: allowance for credit losses
Accrued income
Prepaid expenses
50,000
-3,000
1,500
500
49,000