Nothing Special   »   [go: up one dir, main page]
Scribd Logo
Upload

Welcome to Scribd!

  • 250 views

    2020 Int Acc 1 - Receivables

    Uploaded by

    NICOLE HIPOLITO
    Receivables are financial assets that represent a contractual right to receive cash or other assets from another entity. There are two main types of receivables - trade receivables from sales and non-trade receivables from other sources. Receivables are classified as current or non-current depending on their expected timing of collection. Notes receivable are formal promises to pay, usually evidenced by a promissory note. Entities have options for receivable financing such as pledging, assigning, factoring, or discounting receivables in order to access cash. The allowance method is commonly used to account for expected uncollectible accounts through estimating bad debts as an expense against receivables.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    2020 Int Acc 1 - Receivables

    Uploaded by

    NICOLE HIPOLITO
    250 views45 pages
    Receivables are financial assets that represent a contractual right to receive cash or other assets from another entity. There are two main types of receivables - trade receivables from sales and non-trade receivables from other sources. Receivables are classified as current or non-current depending on their expected timing of collection. Notes receivable are formal promises to pay, usually evidenced by a promissory note. Entities have options for receivable financing such as pledging, assigning, factoring, or discounting receivables in order to access cash. The allowance method is commonly used to account for expected uncollectible accounts through estimating bad debts as an expense against receivables.

    Original Title

    2020 Int Acc 1- Receivables

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Receivables are financial assets that represent a contractual right to receive cash or other assets from another entity. There are two main types of receivables - trade receivables from sales and non-trade receivables from other sources. Receivables are classified as current or non-current depending on their expected timing of collection. Notes receivable are formal promises to pay, usually evidenced by a promissory note. Entities have options for receivable financing such as pledging, assigning, factoring, or discounting receivables in order to access cash. The allowance method is commonly used to account for expected uncollectible accounts through estimating bad debts as an expense against receivables.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    250 views45 pages

    2020 Int Acc 1 - Receivables

    Uploaded by

    NICOLE HIPOLITO
    Receivables are financial assets that represent a contractual right to receive cash or other assets from another entity. There are two main types of receivables - trade receivables from sales and non-trade receivables from other sources. Receivables are classified as current or non-current depending on their expected timing of collection. Notes receivable are formal promises to pay, usually evidenced by a promissory note. Entities have options for receivable financing such as pledging, assigning, factoring, or discounting receivables in order to access cash. The allowance method is commonly used to account for expected uncollectible accounts through estimating bad debts as an expense against receivables.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    You are on page 1of 45

    RECEIVABLES

    PROF. PAULINE KRISTINE M.


    FULGENCIO, CPA, MBA
    RECEIVABLES
    Receivables are financial assets because they represent a
    contractual right to receive cash or another financial asset from
    another entity.
    Trade Receivables
    -Refer to claims arising from sale of merchandise or
    services in the ordinary course of business. Trade
    receivables include accounts receivable and notes
    receivable.
    Non-trade Receivables
    - represent claims arising from sources other than the
    sale of merchandise or services in the ordinary course of
    business.
    Classification
    Trade Receivables
    Those that are expected to be realized in cash within the normal operating
    cycle or one year, whichever is longer, are classified as current assets.

    Non-trade Receivables
    - Those that are expected to be realized in cash within one year, the length
    of the operating cycle notwithstanding, are classified as current assets.
    - IF collectible beyond one year, nontrade receivables are classified as
    noncurrent assets.
    Installment Receivables
    Installment Sales Method
    Used to recognize revenue after sale has occurred and when sales
    are stipulated under very extended cash collection term.
    Examples of nontrade receivable
    1. Advances to or receivables from shareholders, directors, officers or
    employees. If collectible in one year such advances or receivables should
    be classified as current assets. Otherwise, they are classified as noncurrent
    assets.

    2. Advances to affiliates are usually treated as long-term investments.

    3. Advances to Supplier for the acquisition of merchandise are current assets

    4. Subscriptions Receivable are current assets if collectible within one year.


    Otherwise, they are shown preferably as a deduction from subscribed
    share capital.
    Examples of nontrade receivable
    5. Creditors’ accounts may have debit balances as a result of overpayment or returns
    and allowances. These are classified as current assets.

    6. Special deposits on contract bids normally are classified as other noncurrent


    assets because they are likely to remain outstanding for a considerable long period
    of time.

    7. Accrued income such as dividends receivable, accrued rent income, accrued


    royalties income and accrued interest on bond investment are usual current items.

    8. Claims receivable such as claims against common carriers for losses or damages,
    claim for rebates and tax refunds, claims from insurance companies, are normally
    classified as current assets.
    Which of the following statements is true in relation to presentation
    of receivables in the statement of financial position?

    a. Trade receivables and nontrade receivables which are currently


    collectible shall be presented as one line item called “trade and other
    receivables”
    b. Trade receivables and nontrade receivables which are currently
    collectible shall be presented as one line item called “trade and
    noncurrent assets”
    c. Trade accounts receivable and trade notes receivable shall be
    presented separately.
    d. Trade receivables and nontrade receivables are shown separately
    Where the operating cycle extends beyond one year because of
    normal credit terms as in the case of installment sales of household
    appliances

    a. It is proper to classify the entire receivables as current assets with


    disclosure of the amount not realizable within one year, if material.
    b. The entire receivables are shown as noncurrent assets.
    c. The portion due in one year is shown as current and the balance as
    noncurrent.
    d. The receivables are not recognized.
    In the case of long-term installments receivable (real estate
    installment sales) where a major portion of the receivables will be
    collected beyond the normal operating cycle

    a. Only the portion currently due is shown as current and the balance as
    noncurrent.
    b. The entire receivables are shown as current without disclosure of the
    amount not currently due.
    c. The entire receivables are shown as noncurrent.
    d. The entire receivables are shown as current with disclosure of the
    amount not currently due.
    Notes Receivable
    NOTES RECEIVABLE
    - These are claims supported by formal promises to pay usually in the form of notes.
    - The basic issues in accounting for notes receivable are the same as those for accounts
    receivable: recognition, valuation, and disposition.
     
    Negotiable promissory note
    - Is an unconditional promise in writing made by one person to another, signed by the maker,
    engaging to pay on demand or at fixed or determinable future time a sum certain in money to
    order or to bearer.
    – It is a written contract in which one person, known as the maker, promises to pay another
    person, known as the payee, a definite sum of money.
     
    **Standing alone, the term “notes receivable” represents only claims arising from sale of
    merchandise or service in the ordinary course of business.
    What is a “dishonored notes”?
    • A promissory note matures and it is not paid, it is said to be dishonored.
    • (transfer to accounts receivable)
    What is the initial measurement of notes receivable?
    Conceptually, it is initially measured at present value.

    However, short-term notes receivable are measured at face value. While the initial
    measure of long-term notes will depend on whether the notes are interest-bearing or
    non-interest bearing.

    Interest bearing long-term notes are measured at face value which is actually the present
    value upon issuance.

    Noninterest bearing long-term notes are measured at present value which is the
    discounted value of the future cash flows using the effective interest rate.
    How about the subsequent measurement?

    • Subsequent to initial recognition, long term notes receivable shall be


    measured at amortized cost using effective interest method.
    • For long-term noninterest-bearing notes receivable, the amortized cost
    is the present value plus amortization of the discount, or the face value
    minus the unamortized unearned interest income.
    Receivable
    Financing
    Receivable Financing
    • financial flexibility or capability of an entity to raise money
    out of the receivables

    • transfer of receivables to another party to obtain cash


    may OR may not require derecognition of receivables
    YES NO

    (Sale of Receivables) (Secured Borrowing)


    Secured Borrowing Sale of Receivables
    • Pledging • Discounting without recourse
    • Assignment • Factoring
    • Discounting with recourse
    Pledging
    • refers to the use of receivables as collateral for a loan
    • otherwise known as “general assignment of accounts
    receivable”

    ENRTY: debit cash (and discount on notes payable or interest


    expense) and credit Notes Payable

    *no entry for accounts receivable (only disclosure)


    Assignment
    • more formal type of pledging
    • evidenced by a financing agreement and promissory note
    • also known as “specific assignment of accounts receivable”
    • assignor (borrower) transfers its rights in SOME of its accounts receivables to
    an assignee (lender)
    • notification and non-notification basis

    *”accounts receivable assigned” is also included in total accounts receivable but


    disclosure is necessary
    Factoring
    • sale of accounts receivable to a factor
    • notification basis, without recourse
    • gain or loss is recognized for the difference between the proceeds received
    and the carrying amount of accounts receivable factored
    • there is transfer in ownership of the accounts receivable to the factor
    • customers whose accounts are factored are notified

    *accounts receivable factored should be excluded from total accounts receivable


    Discounting
    • endorsing a promissory note to a bank or financing company, the latter advancing
    the maturity value of the note less a charge called discount
    • the payee (endorser) endorses the note to discount it to the bank (endorsee)
    • with recourse and without recourse

    *in the absence of contrary statement, endorsement is assumed to be with recourse


    *without recourse: notes receivable discounted shall be excluded from total notes
    receivable with separate disclosure
    *with recourse: notes receivable shall be excluded from total notes receivable but the
    contingent liability shall be appropriately disclosed
    Net proceeds
    • discounted value of the note received by the endorser from the endorsee
    *Maturity value minus discount

    Maturity value
    • amount due on the note at the date of maturity
    *Principal plus interest

    Discount
    • amount of interest deducted by the bank in advance
    *maturity value times discount rate times discount period

    *discount rate – rate used by bank in computing the discount


    *discount period – period of time from date of discounting to maturity date. It is the
    unexpired term of the note.
    Q&A
    Notes receivable discounted without recourse
    shall be
    a. Included in total receivables with disclosure of contingent liability
    b. Excluded from total receivables with disclosure of contingent liability
    c. Excluded from total receivables without disclosure of contingent
    liability
    d. Included in total receivables without disclosure of contingent liability
    Enumerate the forms of receivable
    financing under secured borrowing
    and sale of accounts receivable
    Why would an entity sell accounts receivable to
    another entity?
    a. To comply with customer agreements
    b. To accelerate access to amount collected
    c. To improve the equality of its credit granting process
    d. To limit its legal liability
    Allowance for
    Bad Debts
    Allowance for Bad Debts

    2 Methods of Accounting for bad debts:


    Allowance Method and Direct Write-Off Method
    Allowance Method
    – An estimate is made of the expected uncollectible accounts from all sales
    made on account or from the total of outstanding receivables.

    - This estimate is entered as an expense and an indirect reduction in accounts


    receivable (via an increase in the allowance account) in the period in which
    the sale is recorded.
    Direct Write Off
    – No entry is made until a specific account has definitely been established as
    uncollectible.

    - Then the worthless account is recorded by crediting Accounts Receivable


    and debiting Bad Debts Expense.

    - The Bureau of Internal Revenue recognizes only this method for income tax
    purposes.
    What is the treatment of “recoveries of
    accounts previously written off”?
    - If a collection is made on account previously written off, the customary
    procedure is to recharge the customer’s account with the amount
    collected and possibly with the entire amount previously charged off if it
    is now expected that collection will be received in full.
    – The recovery is recorded by reversing the entry of written off by
    debiting accounts receivable and crediting allowance for doubtful
    accounts.
    - Collection is then normally recorded by debiting cash and crediting
    accounts receivable.
    Methods of Estimating Bad Debts
    • probable, estimated reliably

    • Aging
    • Percentage of Accounts Receivable
    • Percentage of Sales
    Aging Method
    • Analysis of accounts whether not due or past due
    • Past due accounts are further classified in terms of the length of the
    period past due
    • The required allowance is determined by multiplying the total of each
    classification by the rate of loss experienced by the entity for each
    category

    *accounts receivable would be fairly presented at net realizable value.


    Thus, this method is statement of financial position approach
    Percentage of Accounts Receivable Method
    • A certain rate is multiplied by the ending accounts receivable balance
    • The rate used is usually determined from past experience of the entity

    *also a statement of financial position approach


    Percentage of Sales Method
    • Amount of sales for the year is multiplied by a certain rate to get the bad
    debts expense
    • The rate may be applied on credit sales or total sales
    • Proper matching is achieved

    *this method is an income statement approach


    Doubtful accounts in the income statement
    • Distribution cost
    – if the granting of credit and collection of accounts are under the charge
    of the sales manager

    • Administrative expense
    – if the granting of credit and collection of accounts are under the
    charge of an officer other than sales manager

    *in the absence of any contrary statement, bad debts shall be classified as
    administrative expense
    Q&A
    The advantage of relating a company’s bad debt experience
    to its accounts receivable is that income statement approach

    a. Gives a reasonable correct statement of receivables in the balance


    sheet
    b. Relates bad debts expense to the period of sale
    c. Is the only generally accepted method for valuing accounts receivable
    d. Makes estimates of uncollectible accounts unnecessary
    What method of estimating uncollectible
    accounts emphasizes asset valuation?
    a. Gross sales
    b. Aging the receivables
    c. Direct writeoff
    d. Credit sales returns and allowances
    Which method of recording bad debts loss is consistent with
    accrual accounting?

    a. Allowance method
    b. Direct writeoff method
    c. Percent of sales method
    d. Percent of accounts receivable method
    A method of estimating bad debts that focuses on the income
    statement rather than the statement of financial position is the
    allowance method based on

    a. Direct writeoff
    b. The balance in the trade accounts receivable
    c. Aging the trade accounts receivable
    d. Credit sales
    The End 

    You might also like