INTACCT ONLINE MODULES: (simultaneous).
In this case, the entity is a
RECEIVABLES
DEFINITION and NATURE of Receivables
 Receivables are legitimate claims from other
entities for delivery of goods, from rendering of
service, or from credit or other borrowing
arrangements.
 Receivables are technically defined as a
FINANCIAL ASSET – a financial instrument
that allows the holder the contractual right to
receive cash or another financial asset for
services rendered, goods delivered, or others.
 Receivables are within the scope of IFRS 9 –
Financial Instruments
Classification of Receivables
Trade Receivables vs. Non-trade Receivables
 Trade Receivables - Receivables arising from
the normal course of business of an entity, e.g.
manufacturing entity purchasing raw materials,
converting into finished goods, and, selling the
finished goods in the market.
 Non-trade Receivables – Receivables arising
not from the normal course of business.
Examples include: Interest Receivable,
Receivable from Employees, Advances to
Officers.
Current Receivable vs. Non-Current Receivable
According to IAS 1, Presentation of Financial
Statements:
An asset is presented as CURRENT if:
1. Collectible within the Normal Operating
Cycle.
2. Realizable within 12 months.
3. For trading purposes.
4. If cash and cash equivalents, must be
unrestricted and available for use in the
current operations of the entity.
Otherwise, it will be presented as NON-CURRENT.
Recognition Criteria
 According to IFRS 9, Financial Instruments, an
entity shall recognize a financial instrument
when and only when, an entity becomes a party
to the contractual provisions of the instrument.
 If an entity delivers goods or renders services,
receivables will be recognized in the books
seller of commodities or provider of services.
 If an entity is a creditor in a borrowing
arrangement, it will recognize a receivable from
the debtor.
Initial Measurement
 IFRS 9, Financial Instrument, also prescribes
the initial measurement of financial instruments.
Receivables will be initially recognized at its
TRANSACTION PRICE.
 TRANSACTION PRICE – The amount which
an entity expects to be entitled in exchange for
goods delivered or services rendered or others.
Subsequent Measurement
 Receivables will be subsequently measured at
presented in the Statement of Financial Position
at its AMORTIZED COST.
 According to IFRS 9, Amortized Cost is the
amount at which the financial asset or financial
liability is measured at initial recognition, less
principal repayments, plus or minus the
cumulative amortization using the effective
interest method of any difference between the
initial amount and the maturity amount, and
minus any reduction (directly or through the use
of an allowance account) for impairment or
uncollectibility.
ACCOUNTING FOR CASH DISCOUNTS AND
TRADE DISCOUNTS
 Accounts Receivables are financial assets of
an entity recognized in the books because of
delivery of goods or rendering of services. It
arises from the normal course of business and
thus classified as a CURRENT ASSET in the
Statement of Financial Position.
 They are not evidenced by any other instrument
besides Bill of Account or Statement of
Account, Sales Invoices, Delivery Receipts and
others evidencing the performance of the
service or delivery of the goods.
 They are the open accounts of customers.
Initial Measurement of Accounts Receivable
 Initially measured at its TRANSACTION PRICE
– the amount expected by the entity to be
entitled from the delivery of goods or from
rendering of services.
 Subject to the normal credit terms of entities –
example ”2/10, n/30”.
 Trade Discounts and Cash Discounts
TRADE DISCOUNTS
 Quantity Discounts – encourages the customer
to buy in bulk purchases
 Not recognized for financial reporting purposes.
 Converting LIST PRICE to INVOICE PRICE.
CASH DISCOUNTS
 Sales Discounts – encourages the customer to
settle the account as early as possible.
 Recognized in the books.
 Gross Method; Net Method, and; Allowance
Method;
 
Gross Method – Cash Discount
 Under the Gross Method, cash discounts are
recognized only when TAKEN.
 Most entities use the Gross Method of
accounting for cash discounts.
 Under this method, Sales Discount account
(contra sales account to determine net sales) is
recognized in the books.
 Accounts Receivable and Sales – recognized at
the gross of the discount.
Net Method – Cash Discount
 Under the Gross Method, cash discounts are
recognized when NOT TAKEN.
 Theoretically superior because it initially
recognizes the Accounts Receivable at
Amortized Cost – net of any available cash
discount.
 Accounts Receivable and Sales – recognized at
the net of the discount.
 Sales Discount Forfeited – presented in the
profit or loss section of the Statement of
Comprehensive Income as Other Income.
 Adherent to IFRS 15 – Revenue from Contract
with Customers.
Allowance Method – Cash Discount
 Under the Gross Method, cash discounts are
recognized when OFFERED.
 Accounts Receivable is recognized at the gross
of the discount; Sales is recognized at the net
of the discount; and the difference is credited to
an allowance account
Allowance for Sales Discount – a valuation
account to bring down the Accounts Receivable
account to the amortized cost.
ILLUSTRATIVE DISCUSSION FOR CASH
DISCOUNTS AND TRADE DISCOUNTS
(Please refer to our textbook: Intermediate
Accounting vol. 1 2019 edition by Empleo and
Robles)
Please refer to Problem 2-1
(Please refer to our textbook: Intermediate
Accounting vol. 1 2019 edition by Empleo and
Robles)
Comparison of GROSS, NET, and,
ALLOWANCE METHOD
 PROMISSORY NOTES
 Promissory Notes are formal claims against
another party for services rendered, delivery of
goods or other transactions such as borrowings
or loans.
 It is an unconditional promise to pay a sum
certain in money on a specific date, at a
determinable future time.
 It may be INTEREST BEARING or NON-
INTEREST BEARING.
 It may be SHORT-TERM or LONG-TERM.
Interest bearing VS. Non-interest bearing
INTEREST BEARING
 A promissory note that provides for payment of
interest between issuance date and maturity
date.
 Maturity Value = Principal + Interest
NON-INTEREST BEARING
 A promissory note that makes no provision for
interest. The face value contains the IMPUTED
interest.
Maturity Value = Face Value
measured at present value of all cash flows of
the financial instrument, discounted at the
prevailing interest rate for similar obligations.
 Difference between the FACE VALUE and the
PRESENT VALUE (or the FAIR VALUE OF
THE GOODS/SERVICES) is debited to
Discount on Notes Payable.
 Discount on Notes Payable – amortized to
interest expense using the EFFECTIVE
INTEREST METHOD.
ILLUSTRATIVE DISCUSSION FOR INTEREST
BEARING NOTES
(Please refer to our textbook: Intermediate
Accounting vol. 1 2019 edition by Empleo and
Robles)
ILLUSTRATIVE DISCUSSION FOR NON-
INTEREST BEARING NOTES
(Please refer to our textbook: Intermediate
Accounting vol. 1 2019 edition by Empleo and
Robles)

Interest-bearing Promissory Notes

 Initially measured at its face value which is the
TRANSACTION PRICE.
 Realistic Stated Rate = A rate that
approximates the prevailing interest rate for
similar obligations. The face value is equal to
the fair value of the note (and also the present
value).
 Unrealistic Stated Rate = The stated rate is
considered unrealistic if: (1) The stated rate on
the face of the note is materially different from
the prevailing interest rate for similar
obligations, and; (2) The consideration received
on the account of the note has a fair value
materially different from the face of the note.

Non-interest bearing Promissory Note

 Initially measured at the amount of cash
received, or the fair value of the value of the
goods or services received which is the
TRANSACTION PRICE.
 Where the fair value of the goods/services
cannot be determined, the note is initially