• Accounts

Receivable
• Estimation of
Doubtful Accounts
LEARNING OUTCOMES
• To know the classification and presentation of receivables.
• To know the initial and subsequent measurement of
accounts receivable.
• To understand the gross method and net method of
recording credit sales.
• To know the accounting for doubtful accounts, worthless
accounts written off and recoveries of accounts written off.
• To identify the methods of estimating doubtful accounts.
DEFINE RECEIVABLES

Receivables are assets that represent a

contractual right to receive cash or other
asset from another entity.
Trade receivables are receivables arising from the
sale of goods or services in the ordinary course of
business. They include trade accounts receivables and
trade notes receivables. are classified as current assets
when they are expected to be realized in cash within
the normal operating cycle or one year, whichever is
longer.

Non-trade receivables are receivables arising from

other sources. Classified as current assets only when
they are expected to be realized in cash within one
year.
EXAMPLES OF RECEIVABLES
Accounts receivable - receivables supported by oral or informal promises to pay. These
are not supported by formal promissory notes.
Notes receivable – receivables supported by written or formal promises to pay in the
form promissory notes. Some notes receivable are supported by postdated checks.
Loans receivable – receivables arising from loans extended by financial institutions, such
as banks, financing companies and lending institutions. Loans receivable are also
supported by promissory notes and are generally backed by collateral securities or
postdated checks.
Advances – receivables arising from advances to officers and employees, advances to
suppliers, and advances to affiliates.
Accrued income – receivables arising from income earned but not yet collected, such as
interest income, dividend income and the like.
Deposits – receivables from reimbursable deposits paid to cover potential damages or
losses, deposits for guarantee of performance or payment, and deposits for returnable
items (e.g., crates, containers, etc.)
Claims receivable – receivables from insurance companies for casualties sustained,
defendants under suit, government agencies for refundable taxes and other remittances,
common carriers for damaged or lost goods, and suppliers for returned or damaged goods.
FINANCIAL STATEMENT PRESENTATION
ABNORMAL BALANCES IN ACCOUNTS
Debit balance in accounts payable
• *advances to supplier
illustration:
Information from the records of ABC Company is shown below:
• Accounts receivable – net of ₱12,000 credit balance 48,000
• Notes receivable (trade) 6,000
• Notes receivable (non-trade) - ₱7,000 due in one year 25,000
• Dividends receivable 3,000
• Subscription receivable 5,000
• Advances to officers and employees – due in 18 months 8,000
• Accounts payable – net of ₱6,000 debit balance 5,000
Compute:
(a)Total trade receivables
(b)Total current receivables
illustration:
Information from the records of ABC Company is shown below:
• Accounts receivable – net of ₱12,000 credit balance 48,000
• Notes receivable (trade) 6,000
• Notes receivable (non-trade) - ₱7,000 due in one year 25,000
• Dividends receivable 3,000
• Subscription receivable 5,000
• Advances to officers and employees – due in 18 months 8,000
• Accounts payable – net of ₱6,000 debit balance 5,000
Compute:
(a)Total trade receivables 66,000
(b)Total current receivables 82,000
INITIAL MEASUREMENT

FACE AMOUNT OR ORIGINAL INVOICE AMOUNT

SUBSEQUENT MEASUREMENT
NET REALIZABLE VALUE
ACCOUNTING FOR FREIGHT CHARGE
ALLOWANCE FOR SALES DISCOUNT
METHODS OF RECORDING CREDIT SALES
METHODS OF RECORDING CREDIT SALES
ACCOUNTING FOR BAD DEBTS
Business entities sell on credit rather than only for
cash to increase total sales and thereby increase
income. However, an entity that sells on credit
assumes the risk that some customers will not pay
their accounts.

When an account becomes uncollectible, the entity

has sustained a bad debt loss. This loss is simply
one of the costs of doing business on credit.
TWO METHODS ARE FOLLOWED IN ACCOUNTING FOR BAD DEBT LOSS,
namely:
ILLUSTRATION: ALLOWANCE METHOD
LEARNING OUTCOMES
• To know the classification and presentation of receivables.
• To know the initial and subsequent measurement of
accounts receivable.
• To understand the gross method and net method of
recording credit sales.
• To know the accounting for doubtful accounts, worthless
accounts written off and recoveries of accounts written off.
• To identify the methods of estimating doubtful accounts.
Debit balance in allowance account
 20,000
210,000
3,770,000