(Intermediate Accounting 1)

LECTURE AID

2019

ZEUS VERNON B. MILLAN

Chapter 4 ACCOUNTS RECEIVABLE

Learning Objectives

• Classify receivables as either current or

noncurrent assets.
• State the timing of recognition and
measurement of trade receivables.
• Estimate the recoverable historical
cost of trade receivables.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Trade vs. Non-trade receivables

• Trade receivables are receivables

arising from the sale of goods or services
in the ordinary course of business.
• Receivables arising from other sources
are non-trade receivables.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Financial statement presentation
• Trade 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 classified as current assets

only when they are expected to be realized in cash within
one year.

• Trade and non-trade receivables that are current assets

are aggregated and presented in the statement of
financial position as “Trade and other receivables.”

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Initial Measurement
• Trade receivables that do not have a significant financing
component are measured at the transaction price in accordance
with PFRS 15 Revenue from Contracts with Customers.

• Transaction price is “the amount of consideration to which an

entity expects to be entitled in exchange for transferring promised
goods or services to a customer, excluding amounts collected on
behalf of third parties (e.g., some sales taxes).” (PFRS 15)

• As a practical expedient under PFRS 15, an entity may not discount

a trade receivable if it is due within 1 year.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
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.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
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.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Accounting for sales discounts

• Trade discount vs. Cash discount

• Traditional GAAP vs. PFRS 15 treatment

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Allowance method of accounting for bad debts

• Journal entries
• T-account of the “Allowance for doubtful accounts” account.
• T-account of the “Accounts receivable” account.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Estimating doubtful accounts

1. Percentage of net credit sales method

2. Percentage of ending receivable method
3. Aging method

INTERMEDIATE ACCTG 1A (by:

MILLAN)
 END
INTERMEDIATE ACCTG 1A (by: MILLAN)