Receivables
- are Financial Assets that represent a
contractual right to receive cash or another
financial asset from another entity
- Financial assets are assets later on will be
converted to cash and cash equivalents.
- Claims and Collections
MEASUREMENT:
Initially – Fair Value + Transaction cost
Subsequently – Amortized Cost
TWO CLASSIFICATIONS OF RECEIVABLES
Trade Receivables
- Refers to claims arising from sale of
merchandise or services in the ordinary
course of business.
- Laging ginagawa or part of ordinary
transactions/operations
- Classified as current assets (always).
Disregard the terms kahit more than 12
months pa siya collectible
- Examples:
 Accounts Receivable – are open
accounts arising the sale of goods
and services in the ordinary course
of business and not supported by
promissory notes. Always current
 Notes Receivable – are those
supported by formal promises to
pay in the forms of notes. If silent,
considered as current asset.
Non-Trade Receivables
- Represent claims arising from sources other
than the sale of merchandise or service in
the ordinary course of business
- Classified as current assets if collectible
within 12 months or less; or noncurrent
assets if collectible for more than 12
months
- Examples:
 Advances to/Receivable from
shareholders, directors, officers, or
employees – if silent, noncurrent
 Advances to affiliates – if silent,
noncurrent
 Advances to suppliers – if silent,
current
 Subscription Receivable – if silent
noncurrent, and part of equity as
deduction.
 Creditor’s account with debit balances
– nangyayari tuwing napapasobra bayad
mo sa creditor. Bawal ioffset unless
immaterial kaya magiging receivable.
Ikaw ang may utang, then later on
nagkaroon ka ng receivable. If silent,
current
 Special deposits on contract bids – If
silent, noncurrent
 Accrued Income – if silent, current
 Claims Receivable – nangyayari if
nadamage ka. If silent, current
*current assets are cash and cash equivalents;
part of operating cycle; 12 months or less; and
held for the purpose of being traded
Other Examples of Related to Receivable
Loans Receivable
- In the perspective of banks or other
financial institution
Customer’s account with credit balance
- nangyayari tuwing napapasobra bayad sayo
ng customers. Bawal ioffset unless
immaterial kaya magiging receivable. Ikaw
ang nagpautang, then later on nagkaroon ka
ng payable. If silent, current
liability/payable
Accounts Receivable
- are open accounts arising the sale of
goods and services in the ordinary
course of business and not supported
by promissory notes.
MEASUREMENT:
Initially – Face Value / Original Invoice Price
Subsequent – Net Realizable Value
Net Realizable Value
Accounts Receivable
Allowance for Sales Discount
Allowance for Sales Return and Allowances
Allowance for Freight Out
Allowance for Doubtful Accounts
Net Realizable Value
Sales Discount
- it occurs to prompt payment
Sales Return and Allowances
- Returns = if there is an actual return of
physical goods
- Allowances = if there is a reduction in
payable/receivable
Sales Discount
- it occurs to prompt payment
Freight
FOB Shipping Point, Freight Prepaid
- Owner: Buyer
- Who should pay: Buyer
- Who actually paid: Seller
- Effect on Seller’s Record: Increases
receivable
- Effect on Buyer’s Record: Records
Freight In (Periodic) / Merchandise
Inventory (Perpetual); Increases
Payable
FOB Shipping Point, Freight Collect
- Owner: Buyer
- Who should pay: Buyer
X - Who actually paid: Buyer
(X) - Effect on Seller’s Record: No effect; No
(X) entry for freight
(X)
- Effect on Buyer’s Record: Records
(X)
XX Freight In (Periodic) / Merchandise
Inventory (Perpetual)
FOB Destination, Freight Prepaid
- Owner: Seller
- Who should pay: Seller
- Who actually paid: Seller
- Effect on Seller’s Record: Records
Freight Out
- Effect on Buyer’s Record: No effect; No
entry for freight
FOB Destination, Freight Collect
- Owner: Seller
- Who should pay: Seller
- Who actually paid: Buyer
- Effect on Seller’s Record: Records
Freight Out; Decreases Receivable
- Effect on Buyer’s Record: Decreases
Payable
Estimation of Doubtful Accounts How to compute for ending balance of ADA?
Allowance for Doubtful Accounts, beginning X
Write-off (X)
Allowance Method: Expense X
Setup of Doubtful Accounts: Recoveries X
Allowance for Doubtful Accounts, ending XX
Doubtful Accounts Expense XX
Allowance for Doubtful Accounts XX
To record allowance for doubtful accounts How to compute for ending balance of AR?

Account Write-off: Accounts Receivable, 20x1 X

Credit Sales 20x2 X
Allowance for Doubtful Accounts XX Collections from customers 20x2 (X)
Accounts Receivable XX Write-off 20x2 (X)
To record written off accounts Accounts Receivable, 20x2 XX

Account Recovery:
How to compute for ending balance of Credit
Accounts Receivable XX
Sales?
Allowance for Doubtful Accounts XX
To record recovery of accounts Inventory, beg X
Net Purchases X
Cash XX Inventory, end (X)
Accounts Receivable XX Cost of Goods Sold X
To record collections from customer Gross Margin on Sales X
Sales RAD (X)
Cash Sales (X)
Credit Sales XX
Direct Writeoff Method: (prohibited by
standard)
Setup of Doubtful Accounts:
No entry

Account Write-off:
Doubtful Accounts XX
Accounts Receivable XX
To record written off accounts

Account Recovery:
Accounts Receivable XX
Doubtful Accounts XX
To record recovery of accounts

Cash XX
Accounts Receivable XX
To record collections from customer
Methods of Estimating Bad Debts Find the amount of doubtful accounts expense
1. Percentage of Sales and balance of allowance for doubtful accounts
- If silent, sales = credit sales; net sales at year-end
unless otherwise stated
- Income Statement Approach ADA End = AR End x %
- Percentage of Sales = Doubtful ADA End = 1,500,000 x 5%
Accounts ADA End = 75,000

Eg: Allow. for DA, beginning 27,500

Write-off (12,000)
Credit Sales = 3M
Expense 47,000
AR = 4.5M Recoveries 12,500
Allow. For DA, Jan1 = 35k Allow. for DA, ending 75,000
Writeoff = 20k
Recovery = 12.5k 3. Aging of Receivable
3% of sales - Financial Position Approach
Find the amount of doubtful accounts expense - Percentage of Receivable (end) =
and balance of allowance for doubtful accounts Allowance for Doubtful Accounts, end
at year-end
Eg:
DA Expense = Credit Sales x % Total AR = 1,556,000
DA Expense = 3,000,000 x 3% Allow. For DA, Jan1 = 50,000
DA Expense = 90,000 Writeoff = 5,000
Recovery = 10,000
Allow. for DA, beginning 35,000 Find the ending allowance for doubtful accounts
Write-off (20,000)
and the expense related to AR
Expense 90,000
Recoveries 12,500
Allow. for DA, ending 117,500 Age Amount Estimated Estimated
(in days) collectible Uncollectible
Current 500k 100% 0%
2. Percentage of Receivable 0-30 960k 95% 5%
- Financial Position Approach 31-60 64k 90% 10%
- Percentage of Receivable (end) = Over 60 32k 30% 70%
Allowance for Doubtful Accounts, end

Eg: Age Amount Estimated Allowance

(in days) Uncollectible for DA end
Credit Sales = 1M Current 500k 0% 0
AR = 1.5M 0-30 960k 5% 48k
Allow. For DA, Jan1 = 27.5k 31-60 64k 10% 6.4k
Writeoff = 12k Over 60 32k 70% 22.4k
Recovery = 12.5k Total 1,556k 76.8k
5% of AR
Allow. for DA, beginning 50,000
Write-off (5,000)
Expense 21,800
Recoveries 10,000
Allow. for DA, ending 76,800
Notes Receivable
- are those supported by formal promises to pay in the forms of notes. If silent, considered as
current asset.

MEASUREMENT:
Initially Subsequently
Short-term Interest Face Face Value
Bearing Value
Short-term Non- Face Face Value
Interest Bearing Value
Long-term Interest Face Face Value
Bearing Value
Long-term Non- Present Amortized
Interest Bearing Value cost

Interest Bearing

- In the notes, may nakasulat na principal amount at yung nakapatong na interest rate

Non-Interest Bearing

- In the notes, may amount na nakasulat, walang interest rate. Included na yung interest sa nakasulat
na amount

LUMP SUM

- PV of 1 yung gagamitin
- Key words: Note Due on Dec (or any month) X, 20XX
- The goal here is to bring the present value to face amount at the end

Illustration 1

On January 1, 2021, an entity sold an equipment costing P600,000 with accumulate depreciation of
250,000. The entity received as consideration (down payment) P100,000 cash and a P400,000
noninterest bearing note due on January 1, 2024. The prevailing rate of interest for a note of this type is
10%.

Required:

1. Find the PV Factor (use 4 decimals)

2. Create the effective interest method table
3. Make the necessary journal entries
PV Factor

1.10 / / = = =

0.7513

Face Amount 400,000

Present Value (Face x PV of 1) (300,520)
Unearned Interest Income 99,480

Present Value 300,520

Downpayment 100,000
Sale Price 400,520
Carrying Amount of Asset Sold (350,000)
Gain on Sale 50,520

Cash 100,000
Notes Receivable 400,000
Accumulated Depreciation 250,000
Equipment 600,000
Gain on Sale of Equipment 50,520
Unearned Interest Income 99,480

INSTALLMENT

- PV of 1 yung gagamitin
- Key words: Note Due on Dec (or any month) X, 20XX
- The goal here is to bring the present value to face amount 0
-
Loans Receivable
- Is a financial asset arising from a loan granted by a bank or other financial institution to a borrower
or client

MEASUREMENT:
Initially – Fair Value + Transaction Cost
Subsequent – Net Realizable Value
Receivable Financing