TRADE AND OTHER RECEIVABLES

Trade and Other Receivables – a one-line-item account used to summarize receivables that are
classified as current assets. As to its details, they are disclosed in the notes to financial statements.
Composition
Trade Receivables - are receivables arising from the sale of goods or services in the ordinary course of
business.
Non-trade Receivables - receivables arising from other sources.
Valuation
Short-term receivables – Face value
Long-term receivables

 Discounted amount or present value

 Amortized cost using effective interest method
Receivables may be current or noncurrent and trade or nontrade.

 The rules on current and noncurrent classification are discussed in detail under PAS 1 and are also
based on the receivable as either trade or nontrade.
 Trade receivables arise from the sale of goods or services to customers and in the form of
accounts receivable or notes receivable.

✓ Classified as current asset if collectible within one year or normal operating cycle,
whichever is longer.

 Nontrade receivables are receivables from all other types of transactions like advances to
officers and employees and advances to other entities.

✓ Non-Trade Receivables – current asset if collectible within one year, notwithstanding

the normal operating cycle.
Accounts receivable arise from credit sales. The amount to be recorded as accounts receivable from sales
on account shall be the “Invoice Price” which is the amount after deducting trade discounts from the List
Selling Price. Take note that trade discounts are not accounted for and are ignored for recording purposes.
Recognition
Trade receivable is recognized when the entity has right to consideration that is unconditional. This is
normally the case when the control over the promised goods or services is transferred to the customer.
FOB Shipping point vs. FOB Destination
Under FOB shipping point, ownership is transferred to the buyer upon shipment. Therefore, sales and
accounts receivable are recognized on shipment date.
Under FOB destination, ownership is transferred only upon receipt of the goods by the buyer. Therefore,
sales and accounts receivable are recognized only when the buyer receives delivery of the goods.
The following transactions also affect accounts receivable in computing for the ending balance:
Accounts Receivable
Accounts Receivable are open accounts arising from the sale of goods and services in the ordinary course
of business and not supported by promissory notes.
Valuation
Initial Measurement - @Invoice Price (net of Trade discounts/rebates and other similar items)
Subsequent Measurement - @amortized cost/NRV
Accounts
Receivable XX
Less: ADA (XX)
ASD (XX)
ASR (XX)
AFC (XX)
NRV XX

The net realizable value shall be computed after deducting an allowance for the following:

 Sales returns – value of merchandise expected to be returned by customers as a result in error of

deliveries and defects.
 Sales discounts – value of price savings to customers expected to pay within the discount period
and take advantage of the cash discount.
 Doubtful accounts – allowance for expected uncollectible that is an inherent risk from selling on
credit.
Methods to record A/R

 Gross Method
 Net Method
Methods to account for Bad Debts (Credit Loss)
Direct Write off Method
An immediate recognition of a particular uncollectible account removed directly from accounts
receivable.
Allowance Method
The write-off for accounts receivable under the allowance method is recorded by:
Allowance for doubtful accounts xx
Accounts Receivable xx
The recovery or the collection on an accounts receivable that already has been written off cannot be
recorded by simply debiting cash and crediting accounts receivable. The entry for the write off must be
reversed and before recording the collection with the following two entries:
Accounts Receivable xx
 Allowance for doubtful accounts xx
Cash xx
Accounts Receivable xx
Combining the two entries will be more efficient by:
Cash xx
Allowance for doubtful accounts xx

Allowance Method vs. Direct Write-off Method

Allowance Direct
Application Generally Accepted Non-GAAP
Accounts considered doubtful Expense and Increase the Allowance Not accounted for
Write-off Debit Allowance and Credit AR Debit expense and Credit AR
Recovery Debit AR and credit Allowance Debit AR and credit expense

The computation for the doubtful accounts expense which is an adjusting entry and the allowance for
doubtful accounts will be as follows:
Beginning balance X
Write off (X)
Recovery X
Balance before adjustment X
Doubtful accounts expense X
Ending balance X
There are 3 methods in estimating doubtful accounts:

 The percentage of net credit sales method which will provide the amount of doubtful accounts
expense for the year and therefore is a method that emphasizes proper matching of doubtful
accounts against sales. This amount will then be added to the balance before adjustment, the total
of the two will then be the amount of allowance at year-end or after adjustment.
 The percentage of accounts receivable method will provide the amount of required allowance
for doubtful accounts and just like its counterpart the “Aging Method”, the amount of doubtful
accounts expense will be worked back as an adjustment to the amount of required allowance.
 The aging of accounts receivable method that is arguably the most accurate of all three methods
since an analysis is made and each classification of accounts receivable is multiplied by a specific
rate of the estimate of uncollectible.
 ACCOUNTS RECEIVABLE
+ Credit Sales (-) Sales returns and allowances
+ Recovery of accounts written off (-) Sales discounts
(-) Collections including recovery
(-) Write off

Important Concept
T-
Accounts
Accounts Receivable (ADA)
BB EB EB BB
Sales on
account Coll'n inc. rec. W/O BDE
Rec. SRA Rec.
SD
W/O
XX XX XX XX

1. Pinnacle Company reported the “Receivables” account with a debit balance of P2,000,000 at year-end.
The allowance for doubtful accounts had a credit balance of P50,000 on the same date.
Subsidiary ledger details revealed the following:
Trade accounts receivable P775,000
Trade notes receivable 100,000
Trade installments receivable, normally due one (1) to two (2) years 300,000
Customers’ accounts reporting credit balances
arising from sales return (30,000)
Advance payments for purchase of merchandise 150,000
Customers’ accounts reporting credit balance
arising from advance payments (20,000)
Cash advance to subsidiary 400,000
Claim from insurance entity 15,000
Subscriptions receivable due in 60 days 300,000
Accrued interest receivable 10,000
Total P2,000,000
Requirements:
a. Compute the amount to be presented as “trade and other receivables” under current assets.
2. Judy Company reported current receivables on December 31, 2021 which consisted of the
following:
Trade accounts receivable P930,000
Allowance for uncollectible accounts 20,000
Claim against shipper for goods lost in transit in November 2021 30,000
Selling price of unsold goods sent by the entity on consignment
at 130% of cost and not included in the ending inventory 260,000
Security deposit on lease of warehouse used for storing inventories 300,000
What is the correct total of current net receivables on December 31, 2021?
a. P1,500,000 c. P1,240,000
b. P1,200,000 d. P940,000
3. Mary Company began operations on January 1, 2021. On December 31, 2021, it provided for
uncollectible accounts based on 1% of annual credit sales. On January 1, 2022, it changed its
method of determining its allowance for uncollectible accounts by applying certain percentages to
the accounts receivable aging as follows:
Days past invoice date Percent uncollectible
0 – 30 1
31 – 90 5
91 – 180 20
Over 180 80
In addition, it wrote off all accounts receivables that were over 1 year old. The following additional
information relates to the years ended December 31, 2022 and 2021:
2022 2021
Credit sales P3,000,000 P2,800,000
Collections (including recovery) 2,915,000 2,400,000
Accounts written off 27,000 none
Recovery of accounts previously
written off 7,000 none
Days past invoice date at 12/31:
0 – 30 300,000 250,000
31 – 90 80,000 90,000
91 – 180 60,000 45,000
Over 180 25,000 15,000
What is the uncollectible accounts expense for the year ended December 31, 2022?
a. P39,000
b. P31,000
c. P38,000
d. P11,000