CHAPTER 4: ACCOUNTS RECEIVABLE
APPLICABLE ACCOUNTING STANDARDS
 Philippine Financial Reporting Standards (PFRS) 9 -
Financial Instruments
 PFRS 15 (Revenue from Contract with Customers)
 PAS 32- Financia Instruments Presentation and
Disclosure
RECEIVABLES
 In Layman’s term: mga pautang mo.
 A financial asset that represents a contractual
right to receive cash or another financial asset
from another entity. (DEFINITION BY
ACCOUNTING STANDARDS). (kapag nagbenta ka
ng services or goods, ang kapalit non ay pera.
May contractual right ka na makareceive ng
cash).
It represents the amount collectible from
customers and others, most frequently arising
from sale of merchandise, claims for money lent,
or the performance of services. (Arising from sale
of merchandise- kapag nagbenta ka on account,
may contractual right ka na makareceive ng cash.
Claims for money lent- kapag nagpautang ka
particularly loans receivable. Performance of
services- magpperform ng services and babayaran
on account).
 Under PFRS 15 par. 108, a receivable is an
entity’s right to consideration that is
UNCONDITIONAL.
A right to consideration is unconditional if only the
passage of time is required before payment of
that consideration is due. (right to consideration-
yung babayaran sa iyo is unconditional. Tuwing
kailan? May paglipas ng panahon at requirement
yon before ka bayaran. Kapag hindi ka binayaran
ni customer ngayon at sinabi na bukas na lang,
there is a passage of time. Consideration- kailan
ka babayaran sa services na ginawa mo or sa
goods na binenta mo).
CLASSIFICATION OF RECEIVABLES
CLASSIFICATION AS TO SOURCE
1. TRADE RECEIVABLES- claims arising from sale of
merchandise or services in the ordinary course of
business operation. (related sa normal operating ng
business mo. For example: ikaw ay may parlor, di ka
agad binayaran ng customer mo. May collectible ka
sa kanila and that would be classified as trade
receivables. Kasi nagrender ka ng service sa kanila.
Di pa sila nagbayad, at sabi magbabayad sila the
following day or sa susunod na panahon. Yung
service na nirender mo is related to operation ng
business.)
a. Accounts receivable (other terms for a/r:
customer’s accounts or trade debtors or trade
accounts receivable)- open account; not
supported by a promissory note.
b. Notes receivable- is a formal claim against
another that is evidenced by a written promise
called “Promissory note” or a written order to
pay at a later time called “Time draft.” (tuwing
kelan maccollect? If there is a written promise
to pay).
Negotiable promissory note is an unconditional
written agreement to pay a certain sum of
money on a specific or determinable date to
order of the payee or to bearer. (unconditional
written agreement- pag may word na
unconditional, ang requirement ay there is a
passage of time. Specific or determinable date-
naka specify sa promissory note kung kelan mo
issettle. Order to payee or bearer- ikaw na
business, ang magbabayad sa iyo ay customer
mo).
IMPORTANT NOTE!
ONLY negotiable promissory note is included as
part of notes receivable. Dishonored notes
receivable do not qualify as notes receivable in
the Statement of Financial Position as well as
overdue notes. They are classified as Accounts
Receivable together with accrued interest.
(overdue notes- february 1 na, lumagpas na ng
 feb 1 and hindi pa nassettle, wag daw isasama
under notes receivable na pinepresent mo sa
SFP. Pero pano raw ang presentation? They are
classified as Accounts Receivable together with
accrued interest.)
2. NON-TRADE RECEIVABLES- claims that arises from
sources other than from the sale of goods or
services in the normal course of business. (hindi
siya nangyayari in the normal operating cycle ng
business. Kumbaga hindi siya daily part ng
operation. For example: nagpautang si business sa
mga officers niya or advances sa mga employees.)
EXAMPLES OF NONTRADE RECEIVABLES AND ITS
CLASSIFICATION
2. Advances to affiliates- mga affiliated company. Mga
sister company mo. Normally pag may mga advances na
ganyan, minsan may interest, minsan wala. Normally,
pag may advances to affiliates, long term investment to.
3. Advances to supplier for acquisition of merchandise-
ikaw, nag advance ka kay supplier ng bayad mo. Bakit
hindi siya classified under trade receivables? Kasi ang
ine expect mong mareceive dito is hindi pera, ang ine
expect mong mareceive rito ay goods.
5. for example, may mga deposit tayo na tinatawag para
ma assure natin na ipperform talaga yung services or
iddeliver yung goods. Nagdedeposit muna. Pero pag
naperform na yung services or nadeliver na yung goods,
maibabalik mo. Kaya nga deposit to guarantee
performance- para lang may assurance ka na gagawin
talaga.
7. hindi ito ina identify as trade receivable kasi hindi
naman normal na nagyayari na may gantong ganap.
Bihirang bihira lang. lalo na kung ito ay naka FOB
destination.
8. minsan pag napasobra yung bayad mo ng income tax
or any tax. Pwede ka mag file ng refund. Malamang yan
ay magiging receivable mo from the government. Kaya
non trade ang classification.
9. kung sa nagpapareserve, meron munang pa down.
Kung ikaw makikipag bidding pano magguarantee na
ikaw talaga ay magbbid. So minsan nirrequrie talaga na
may special deposit para may assurance rin na magbibid
ka talga, hindi basata sinabi mo lang. pero syempre
babalik din yan sa iyo.
10. debit balace of creditors account- meaning
nagkaron ng debit balance ang iyong accounts payable.
Meaning napasobra ka ng bayad. As a general rule,
hindi mo yan pwedeng i-netted sa accounts payable.
Kailangan I-identify mo siya as non trade receivable. If
material, current asset ang classification. If immaterial
ito, minsan ginagawa na lang ding loss.
CLASSIFICATION AS TO SFP
1. CURRENT
a. TRADE RECEIVABLES- generally classified as
current because of the concept of normal
operating cycle notwithstanding the period from
the reporting date. (kahit lumagpas sa isang
taon, basta within the normal operating cycle pa
rin, current pa rin ang classification. Kasi nga
trade, related sa business operation mo. Normal
operating cycle- from the moment na bumili ka
ng raw materials, up to the moment ng finished
goods, nabenta mo, upto the moment na
naiconvert mo siya into cash. It can be shorter, it
can be longer.)
b. NONTRADE RECEIVABLES- classified as current
only if they are reasonably expected to be
realized in cash within 12 months after the
reporting date. (macclassify mo lang siya as
current if expected to be realized (makolekta
mo) within 12mos after the reporting date).
INITIAL RECOGNITION OF RECEIVABLES
Receivables are recognized simultaneously with the
recognition of revenue under PFRS 15. (inirerecognize
mo yung receivables simultaneously or parallel.
Kasabayan ng pagrrecognize mo ng revenue. Kelan ka
nagrrecognize ng revenue? Kapag nakapagtransfer na
ng goods and services at meron kang ineexpect na
amount na mareceive from that transfer).
The entity shall recognize revenue to depict the transfer
of promised goods/services to customers in an amount
that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or
services (PFRS 15.2). (nagrrecognize ka ng revenue
kapag nakapag render ka na ng service or nadeliver mo
na yung goods. In an amount that reflects the
consideration- kung anong napagkasunduan, kung
magkano yung transaction, yun yung babayaran. To
summarize, kapag nakapagtransfer ka na ng goods or
service. Tapos nag iintay ka na lang na mabayaran
doon sa amount na napag agreehan, that is the time
that you will recognize revenue.)
INITIAL MEASUREMENT OF RECEIVABLES
Receivables
*Transaction cost- these are costs that are directly
associated with the assets.
*Under PFRS 15- hindi kasama yung mga output VAT or
output tax. Yung estimates of variable consideration
means for example: bukod sa pagbabayad ng upa,
meron ka ring porsyento sa sales nung nagababyad ng
upa. Umuupa siya sa iyo, nagpaparent ka tapos may
business siya. Yung business niya is kumikita ng
malakas. Sabi mo, may porsyento ka pa rin don dapat.
Kunyari 5% of sales. So hindi raw yon kasali kasi ibang
usapan yon. Kumbaga ibang form of revenue yon. Yung
3rd parties is for example yung BIR (collecting tax agent).
SUBSEQUENT MEASUREMENT OF RECEIVABLES
*Net realizable value- for example, may pautang ka na
100k. means may receivable ka na 100k. you found out
that one of your customers is may 50k na utang. And
possible na hindi niya mabayaran yon. How much lang
ang maccollect within this year? Dahil nagprovide ka ng
allowance. 50k lang ang magiging net realizable value.
NET kasi mininus mo na. REALIZABLE kasi narealize mo
na yun lang maccollect mo this year. Kasi nga doubtful
ka na etong customer na ito is makabayad.
SHORT TERM RECEIVABLES AND NET REALIZABLE
VALUE
Topic Outline
 Initial and Subsequent measurement of short-
term receivables (short term receivables are
receivables that are collected within one year or
less or net operating cycle).
 Net Realizable Value (NRV) determination
INITIAL AND SUBSEQUENT MEASUREMENT
1. INITIAL
Short-term receivables with NO STATED INTEREST
RATES can be measured initially at transaction price (EX.
INVOICE PRICE) when the effect of discounting is
IMMATERIAL. (trade discount- minaminus na sa list
price para madetermine na yung invoice price. Invoice
price- magkano talaga ang bentahan).
2. SUBSEQUENT
Net Realizable Value (NRV) – the recoverable amount.
(net means may ibinawas ka sa original/initial amount
of receivable.)
NET REALIZABLE VALUE
Based on the concept of “assets shall not be carried at
above their recoverable amount.” (pumapasok sa
conservatism. Wherein hindi sana tayo nagrrecognize
ng mga asset kung hindi naman talaga siya probable na
makapagprovide ng economic benefit and at the same
time measured reliably. Dapat kung magkano lang NRV,
yun lang dapat ang naka reflect doon sa accounting
records. kasi maraming magiging implication kapag
hindi minemeasure yung asset at the right amount or at
the recoverable amount. Youre violating the
conservatism. Kaya nga as much as possible it should be
carried out in the recoverable amount.)
FORMULA OF NET REALIZABLE VALUE (TRADE)

Estimating NRV of Trade A/R, the following deductions
are made:
1. Allowance for Freight Charge (mga FOB)
Terms related to freight charge
a. FOB- means either “Free on Board” or “Freight
on Board” (pagbyahe ng product).
b. FOB destination- ownership of the goods will be
transferred to the buyer only upon the receipt
of the goods at the point of destination. (kung
ikaw ay nagbebenta, yung ownership ng goods
ay mattransfer lang doon sa customer mo only
upon the receipt of the goods at the point of
destination)(ikaw na seller, yung goods ay
dapat makarating kay buyer. At that time na
hindi pa nakakarating yung goods from seller to
buyer. Yung ownership is na kay seller pa until
such time na makarating kay buyer. Ibig sabihin
nito, kapag may nangyari sa mga goods, may
defect or kung ano man ang nagnyari. Si seller
pa rin ang magiging liable pagdating kay buyer.
Kasi nga nakalagay fob destination. Kumbaga
kailangan makarating kay buyer yung goods ng
safe. At mattransfer mo lang yung ownership sa
kanya, pag nakarating na sa kanya. And
ngayon dahil namamasahe rin at may delivery
expense, ikaw ang magsshoulder niyan until
such time na makarating siya sa destination or
kay buyer. Sa madaling salita, yung delivery
expense is si seller ang nagbabayad).
c. FOB shipping point- ownership of the goods will
be transferred upon shipment of the goods by
the seller to the buyer. (kung ikaw ay
nagbebenta, mattransfer mo yung ownership
sa buyer, at the point of shipment)(kung bumili
si buyer kay seller. At the point of shipping,
yung ownership is na kay buyer na. wala na kay
seller. Kasi shipping point (At the point of
shipping). Kung yung point of shipping is
papunta na kay buyer, yung ownership is na kay
buyer na. kapag may nangyari, nasira yung
paninda including yung pambayad ng
pamasahe, si buyer na ang sshoulder. Kumbaga
wala ng liability si seller kapag fob shipping
point).
d. Freight prepaid- freight charge on the goods
shipped was already paid by the seller. (freight
prepaid means binayaran na ni seller.)
e. Freight collect- freight charge on the goods
shipped is not yet paid by the seller and the
common carrier shall collect the same from the
buyer. (freight charge means pamasahe.
Freight collect, ang magsshoulder ng bayad is si
buyer).
FOB DESTINATION- seller ang dapat magbayad (at the
point of shipping, nasa seller ang legal ownership),
Freight Prepaid- seller ang nagbayad
FOB SHIPPING POINT- buyer ang dapat magbayad ng
pamasahe (at the point of shipping, nasa buyer ang
legal ownership),
Freight Collect- buyer ang nagbayad
*freight out is considered as expense
*freight in is an adjunct account because nagiging part
siya ng cost of sales. Kung ikaw ay bumibili at namasahe
ka. Logically, kung amgkano mo binili yung paninda,
ipapatong mo ron yung pamasahe. Kaya tinawag mo na
cost of sales. Cost ng pagbebenta mo. Eventually,
ibebenta mo rin yan. Example 100k mo binili, namasahe
ka ng 5k. magiging 105k yung COS mo kasi pinapatong
mo yung pamasahe. Kumbaga chargeable yon. Kaya ang
tawag sa kanya ay freight in. si buyer ang dapat
magrecord, walang kinalaman si seller.
NOTE: ^^^
-kapag FOB destination, freight prepaid. Walang *200k x 90% x 80% para mabilis makuha yung net.
problema dahil si seller ang dapat magbayad, at siya *SALES DISCOUNT- nakabili na si buyer. Kaya ka
talaga ang nagbayad. nagbibigay ng sales discount, kasi ine encourage mo
-kapag FOB destination, freight collect. Si seller pa rin siya na mas magbayad ng maaga.
ang magrrecord ng freight out. Kapag magrrecognize ng *walang kinalaman si freight out sa total cash
freight out, wag titignan ang freight prepaid or collect. collection. Kasi may separate record iyan. Kasi
Ang titignan is kung anong FOB which is destination. pamasahe yan. Ang classification niyan ay delivery
Kapag si buyer ang nagbayad, ibabawas lang ni seller expense.
yon sa kokolektahin sa kanya kasi inabonohan lang niya.
Pero ikaw pa rin seller ang magrerecord ng freight out. Case 2: FOB destination point, freight collect
-kapag FOB shipping point, freight collect. Walang
problema dahil si buyer ang dapat magbayad, at siya
talaga ang nagbayad.
-kapag FOB shipping point, freight prepaid. Kahit na
freight prepaid yan na binayaran muna ni seller.
Papatong lang muna yan doon sa magiging receivable
mo sa kanya. Pero kahit si seller ang nagbayad, by the
mere fact na FOB shipping point ito, si buyer pa rin ang
dapat magrecord ng freight in.

REQUIREMENT 1
2021
*allowance for freight charge- imaminus kay a/r. or
pwedeng deretsong credit na a/r. kaya nagcredit na
allowance for freight charge is para makita bakit pano
madetermine yung NRV.
*BUYER- nag debit ng a/p para mabawasan yung utang
kay seller.

2. Allowance for sales returns (mga customer na

nagbalik because of defect or problem)

Journal Entry:
Sales Return xxx
Allowance for sales return xxx

*yung AFSR is deduction sa A/R kapag ippresent mo na

siya sa SFP to determine the NRV.

Kung wala talagang nagreturn, ang entry ay (reverse):

Allowance for Sales Return xxx
REQUIREMENT 2 Sales Return xxx
*determine muna magkano yung invoice price. Pero
ang given kasi na ibinigay is list price. So kailangang 3. Allowance for sales discount (mga nag avail ng
ibawas yung trade discount. Ang concept ng trade cash discount. Magiging deductions pa rin sa a/r)
discount is ine encourage mo yung mga buyer na bumili
ng madami or bulk order. Para ma encourage mo sila na Journal entry:
bumili. Nagbigay ka ng 10% and 20%. Sales Discount xxx
 Allowance for sales discount
*Receivable should be measured initially at invoice
price and not at list price. Kaya nga mina minus na yung
TD sa list price. TD is not recorded in the book, since the
basis is the sales invoice amount.
*Sales discount- POV of seller
*Purchase discount- POV of buyer
xxx macollect. Kasi nga may mga indicator na yung
mga customer mo na may utang sa iyo or may
receivables ka. May mga indicator na possible na
hindi sila makapagbayad. Halimbawa, naniningil ka
walang response, nagappadala ka ng demand letter
walang response, tinatawagan mo walang
response. And then again nabalitaan mo na may
issue ng bankruptcy yung may utang sa iyo.
Pwedeng mag arise don yung tinatawag na bad
debts).
 Also called as “Doubtful
Accounts/Impairment loss” (or pinaiksing
doubtful accounts receivable. mga doubtful
tayo sa mga customer na magbayad.
Impairment loss- generally ginagamit sa
impairment ng assets. Both current and
noncurrent. ang ibig sabihin ng impairment
loss, initially kapag may receivable tayo,
dinedetermine natin yung initial
measurement niya at invoice price or
transaction price. And eventually, nagiging
NRV siya or tinatawag nating recoverable
amount. At normally yan ay nababawasan from
original price going to NRV. Because may mga
allowance for sales return, allowance for sales
discount, allowance for freight, and allowance
for bad debts. Lahat ng yan ay deduction sa
invoice price to determine the NRV. Ang sinasabi
lang ng term na impairment loss, dapat daw for
ex. Based sa computation mo ang maccollect na
lang ay for ex: 80k based on our estimate. Pero
originally nakalibro pa rin siya sa atin at 100k.
dapat daw ibaba mo siya from 100k to 80k
which is the recoverable amount. Any difference

which is 20k. ang tawag don ay impairment

loss.)

 Based on ESTIMATE (hindi siya exact amount.

Hindi siya absolute amount. May basis pa rin ng
pag eestimate ng bad debts. For example:
historical experience ng company for the past
5years or 10years).
4. Accounting for Bad Debts (mga receivables or
pinautang mo na merong doubt ka na hindi na
2 METHODS IN ACCOUNTING FOR BAD DEBTS
1. Allowance Method- the allowance method requires
recognition of a bad debt loss if the accounts are
doubtful of collection. (may mga times na
nagbibigay sa atin ng indicator na ang mga
customer natin ay hindi makapagbayad. Ang tawag
don ay doubtful tayo na macollect siya. Pero hindi
pa rin naman tayo Stotally sigurado na hindi na siya
makakabayad or worthless na yung receivable. That
is why, in compliance with the principle of
conservatism, we provide allowance for that.)
2. Direct Write-off Method- requires recognition of a
bad debt loss only when the accounts proved to be
worthless or uncollectible. Worthless accounts are
recorded by debiting bad debts and crediting
accounts receivable. If the accounts are only
doubtful of collection, no adjustment is necessary.
(totally inalis mo sa libro or sa record. Written off,
inalis mo directly. Dito sa direct write off, wala
siyang pakelam kung may doubtful receivables ka
kasi doubtful pa lang yon. Magrrecord lang ng bad
debts si direct write off method once you prove it na
yung a/r na yon ay worthless or talagang sure na
na hindi na makakabayad. Yun lang yung time na
magrrecognize siya ng bad debts. Pero kung sa
kanya, ay doubtful pa lang yon. No journal entry
ang gagawin niya. Kaya nga direct write off ang
tawag, once na prove na worthless ang a/r iddirect
write-off.)
2 METHODS IN ACCOUNTING FOR BDS - IMPORTANT
NOTE!
Between the two methods, hindi ina allow ng
accounting standard and direct write off method. Ang
pinapagamit talaga or ina allow talaga is allowance
method. However, for BIR purposes or for tax purposes,
ang ina allow naman ay direct write off method. Why?
Kasi everytime na nagpprovide ka ng bad debts or
allowance, ang dinedebit mo ay bad debts or doubtful
account expense, and then credit allowance. Kung I
aallow ng BIR na gamitin yung allowance method, para
mapaliit ko yung income tax, ang gagawin ko lalakihan
ko yung pag estimate nung bad debts or allowance. Kasi
estimate lang naman yon. That is the reason kung bakit
hindi siya ina allow or cinoconsider ng BIR for
computation ng income tax. Ang pinapayagan lang niya
ay ang direct write-off.
1. Kung mapapnsin sa direct write off method, is no
journal entry. Why? Sabi nga, under direct write off
method, magrrecord lang ng bad debts once na
yung 10k na yan ay proved to be worthless or hindi
na talaga maccollect.
2. Direct write off method- mismong bianwas mo na
sa a/r. walang allowance na makikita.
3. Both method- reverse lang. and then debit cash kasi
narecover mo or nacollect mo, and then credit a/r
kasi nabawasan may utang sa iyo.
PRESENTATION IN THE FS
Bad Debts Expense is presented in the Income
Statement/Profit or Loss Portion of the Statement of
Comprehensive Income. (statement of comprehensive
income has two components: 1. Income statement and
2. Other comprehensive income. But the point is,
makikita si bad debts expense sa income statement and
not sa other comprehensive income)
Can either be part of:
1. Distribution Cost/Selling Expense (if granting of
credit and collection of a/r is under the
supervision of sales manager)
 If the granting of credit and collection of
accounts are under the charge of the sales
manager, doubtful accounts shall be considered
as distribution cost.
2. Administrative Expense (If the problem is silent,
normal presentation)
If the granting of credit and
collection of accounts are under
the charge of an officer other
than sales manager, doubtful
accounts shall be considered as
administrative expense.
In the absence of any contrary
statement, doubtful accounts
shall be classified as
administrative expense.
Allowance for Bad Debts is presented in the Statement
of Financial Position/Balance Sheet as Contra asset
account (deduction to Accounts receivable)

Accounts receivable Pxx

Less: Allowance for Bad Debts xxx
Net Realizable Value Pxx