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Receivables Notes

Receivables represent amounts owed to an entity from customers or others from the sale of goods or services on credit, loans made, or other transactions. Receivables usually consist of accounts receivable from customers and other receivables such as advances to employees. They are initially measured at fair value or amortized cost and classified as either current or non-current assets depending on their expected collection date. Receivables are subsequently measured at their net realizable value through an allowance for doubtful accounts estimate.

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68 views12 pages

Receivables Notes

Receivables represent amounts owed to an entity from customers or others from the sale of goods or services on credit, loans made, or other transactions. Receivables usually consist of accounts receivable from customers and other receivables such as advances to employees. They are initially measured at fair value or amortized cost and classified as either current or non-current assets depending on their expected collection date. Receivables are subsequently measured at their net realizable value through an allowance for doubtful accounts estimate.

Uploaded by

John Cedfrey Narne
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Receivables

 Represent amount collectible from customers and others arising from:


o Sale of merchandise
o Claims for money lent; or
o Performance of services

 Receivables usually consists of:


o Open accounts with customer for uncollected sales or revenues
o Advances to officers, employees, affiliates
o Claims against suppliers and insurance companies
o Other receivables from nonrecurring transactions

 Receivables are financial assets that represent a contractual right to receive cash or another
financial asset from another entity.

*Note:

For banks and other financial institutions

1. Receivables result primarily from loans to customers


2. Loans are made to heterogenous customers
3. Repayment periods are frequently longer or over several years

Initial Measurement and Recognition

 At fair value plus transactions costs that are directly attributable to acquisition or at amortized
cost

Short-term Receivables

 Fair value => face value or original invoice amount


 Undiscounted cash flows

Long-term receivable

 Interest-bearing => fair value = face value


 Non-interest bearing => amortized cost (present value)
Valuation (subsequent Measurement)

 Net realizable value – expected amount to be collected (gross receivable - allowance for DA)
 For lone-term notes receivable
o At amortised cost => non-interest bearing notes & notes with unreasonable interest rate
 For foreign denominated receivable
o Translated to local currency at the rate of exchange on SFP Date (closing date).

Classification

1. Trade or non-trade (not necessary to classify)


a. Trade Receivables (ordinary course of transactions)
i. Accounts receivable
ii. Notes receivable
b. Non-trade (other sources of transaction besides the nature of business)
i. Sale of equipment receivables

2. Current or non-current
a. Current
i. Trade Receivables – reasonably expected to be collected within one year or
during the normal operating cycle whichever is longer.
ii. Non-trade Receivables – reasonable expected to be collected within one year

b. Non-Current
i. Trade Receivables - reasonably expected to be collected beyond one year or
beyond the normal operating cycle whichever is longer.
ii. Non-trade receivables - reasonable expected to be collected beyond one year

Non-trade Receivables Examples:


Other Notes

1. Credit balances in accounts receivable should be reclassified as liabilities (Sales Returns and
Advance Payments)
2. If receivables are hypothecated/pledged against borrowings, the amount of receivable involved
should be disclosed
3. In disclosing the specifically assigned accounts receivable, the assignor should report them as
part of accounts receivable with a disclosure of the amount assigned

Accounts Receivables

 Most common collectible account


 Short-term receivable that arise from ordinary course of the business
 Open account (no formal written promise to pay or promissory note is required)

Factors affecting AR

 Freight charges
o FOB shipping point; prepaid (buyer pay transportation charges) (increase AR)
o FOB destination point; collect (seller pay transportation charges) (decrease AR)
 Sales returns and allowances
o Goods damaged or defective, of inferior quality, or do not meet specifications
 Cash discounts – gross and net method
 Bad debts

Recognition of AR

2 types of discounts

1. Trade discounts
a. Reduction in the retail price (list price/catalog price) of products that arises from bulk
shares or purchases
b. Often granted to wholesalers who buy in high volumes
c. Not recognized in accounting records
d. Customers are billed net of discounts

2. Cash discounts
a. Granted to customer for paying the account promptly (early)
b. Recorded as “sales discount” by a seller
c. Recorded as “purchase discount” by a buyer (if the periodic inventory is used)
d. Gross method vs Net Method
NET METHOD
*Debit balance in Allowance for Doubtful Accounts results from the direct write-off during the year is
higher than the beginning balance of Allowance for Doubtful Accounts.
*Estimated rates for AFDA are reviewed regularly to avoid inadequacy or excessiveness of Doubtful
Accounts
‘

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