RECEIVABLES

Represent claims that are expected to be settled by receipt of cash.

ACCOUNTING FOR ACCOUNTS RECEIVABLE

AR- Trade receivables on open accounts and are not evidenced by promissory notes or time dra

Trade and Cash Discounts

Trade Discounts (volume or quantity discounts)- means of converting a catalog price to the pric
deducted from the list price prior to recording the AR arising fro
both AR and Revenue are always recorded net of trade discount
For example:
Assume that on July 16,2016, ABC Manufacturing sells merchandise on account with a list price

List Price 100,000 OR 100,000x.9x.9x.95=

Less: 10% -10,000
90,000 Entry:
Less: 10% -9,000 Accounts Receivable
81,000 Sales
Less: 5% -4050
Invoice Price 76,950

Cash Discounts (sales discount)- reductions from the sales price as an inducement for prompt p
Ex.: 2/10, n/30 (2% discount is granted if account is paid within 10 days from the invoice date, gr
3/15, n/60 (3% discount is granted if account is paid within 15 days from the invoice date, g

Three methods:
a. Gross Price Method
b. Net Price Method
c. Allowance Method

For example:
Assume that on July 16,2016, ABC Manufacturing sells merchandise on account with a list price
Credit terms were 2/10; n/30 FOB Shipping point and freight paid to the shipper by ABC Manu. a
A. Gross Price Method B. Net Price Method
AR and Sales are initially recorded at the gross AR and the sales are recorde
sales price with no accounting recognition of the less cash discount.
available cash discount until it is actually taken.

Entry: Entry:
Sale on July 16, 2016 Sale on July 16, 2016

Accounts Receivable 78950 Accounts Receivable

Sales 76950
Cash 2000

If customer pays within the discount period: If customer pays within the

Cash 77411 Cash

Sales Discount 1539
AR 78950

If customer pays beyond the discount period: If customer pays beyond the

Cash 78950 Cash

AR 78950

Adjusting Entry: Adjusting Entry:

Sales Discount AR
Allowance for Sales Discount
 issory notes or time drafts

catalog price to the prices actually charged to the buyer.

ording the AR arising from a credit sales transaction.
ed net of trade discounts.

account with a list price of P100,000, less trade discounts of 10%, 10% and 5%.

76,950

76,950
76,950

nducement for prompt payment of an account

from the invoice date, gross amount due in 30 days)
from the invoice date, gross amount due in 60 days)

account with a list price of P100,000, less trade discounts of 10%, 10% and 5%.
e shipper by ABC Manu. amounted to P2,000
Net Price Method
nd the sales are recorded at the sales price
cash discount.

on July 16, 2016

ounts Receivable 77411

Sales 75411
Cash 2000

stomer pays within the discount period:

77411
AR 77411

stomer pays beyond the discount period:

78950
Sales Discount Forfeited 1539
AR 77411

usting Entry:

Sales Discount Forfeited

 9450
85050

1890
92610

Invoice price: 171000

Sales discount 5130
Net 165870

Net price method:

Initial entry
AR 165870
Sales 165870

Beyond:
Cash 171000
Sales Discount Forfeited
AR
0%, 10% and 5%.

0%, 10% and 5%.

C. Allowance Method
AR is recorded at the gross sales price, the sales revenue
is recorded at net amount and the available cash discount
is recorded as Allowance for Sales Discount.

Entry:
Sale on July 16, 2016

Accounts Receivable 78950

Allowance for Sales Discount 1539
Sales 75411
Cash 2000
If customer pays within the discount period:

Cash 77411
Allowance for Sales Discount 1539
AR 78950

If customer pays beyond the discount period:

Cash 78950
Allowance for Sales Discount 1539
Sales Discount Forfeited 1539
AR 78950
Adjusting Entry:
Allowance for Sales Discount
Sales Discount Forfeited
 5130
165870