MODULE 4

ACCOUNTS
RECEIVABLE
Receivables are financial assets that represent
contractual rights to receive cash or another
financial asset from another entity.

Classifications of Receivables for non-financial

institutions
1.Trade Receivables
2.Non Trade Receivables
For financial institutions
- No classifications as to trade or non-trade
- Disclosure is needed as to its collectability

Presentation in the financial statements

Trade receivables and non-trade receivables
currently collectible are presented as one line item
“Trade and other Receivables”. The breakdown is
disclosed in the notes.
Credit balance in Accounts Receivable
- Should be presented as part of Current
Liabilities
- Should not be offset against receivables

Debit balance in Accounts Payable

- Should be presented as part of Current Assets, a
non-trade receivables
- Should not be offset against payables
Initial Measurement
1. Current receivables (trade receivables and non
trade receivables collectible within one year)
Fair value plus transaction costs; with fair value
normally equal to face amount.
2. Non-current receivables bearing reasonable
interest rate
Fair value plus transaction costs; with fair value
normally equal to face amount.
3. Non-current non-interest bearing receivables
Fair value plus transaction costs; with fair value
normally equal to present value of future cash
flows from the receivable..
4. Non-current receivables bearing below-market
interest rate
Fair value plus transaction costs; with fair value
normally equal to present value of future cash
flows from the receivable.
Recognition of Accounts Receivable
- Recognized when ownership over goods is
transferred to the buyer.
Terms of Shipment
1. FOB Shipping Point
2. FOB Destination
3. Freight Collect
4. Freight Prepaid
Trade Discounts versus Cash Discounts
Trade Discounts
- Deducted from the list price to determine the
invoice price
- Not recorded
Cash Discounts
- Encourage prompt payment
- Recorded as Sales Discount by the seller and
Purchase Discount by the buyer.
Accounting for Cash Discounts
1 Gross Method
2 Net Method
if not availed by the buyer, credit to
Sales
Discount Forfeited, an other income
account.
Subsequent Measurement
For Trade Receivables, Short-term non-trade
receivables, and Long term interest bearing
receivables at NRV.
For short-term receivable measured at present
value, long term non interest bearing receivables
and receivables below-market interest rate at
amortized cost.
Estimating NRV
Gross Receivables less:
- Allowance for Sales Discount
- Allowance for Sales Return
- Allowance for Doubtful Accounts
thanks