Receivables - If current, addition to current asset

- Financial assets that represent a 5. Creditor’s account with debit balances

contractual right to receive cash or - when problem is silent, it is current
another financial asset from another entity 6. Special deposits on contract bids
- Sa mga kontrata, deposit mo to
Types of Receivables make sure irrender mo yung
1. Trade Receivables: refers to claims arising service
from sale of merchandise or services in - when problem is silent, it is
the ordinary course of business. non-current
2. Non-trade Receivables: represent claims 7. Accrued income
arising from sources other than the sale of - service is rendered but cash in not
merchandise or service in the ordinary yet paid
course of business. - when problem is silent, it is current
8. Claims receivable
Classification - when you get damaged (ex. the
Trade → Current (always) carrier damaged your
Non-trade → a. 12 months or less (current) merchandise)
b. more than 12 months - when problem is silent, it is current
(non-current)
Other types of receivables:
What is Current Asset? a. Loans Receivable
a. Cash and cash equivalents - you are the bank and
b. Part of operating cycle nagpapautang ka
c. 12 months or less b. Credit balance of customer’s account
d. Held for the purpose of being traded - Ikaw yung may kolektahin

2 Classifications of Trade Receivables

1. Accounts receivable: are open accounts Accounts Receivables
arising from the sale of goods and - Are open accounts arising from the sale of
services in the ordinary course of business merchandise or services in the ordinary
and not supported by promissory note course of business and not supported by
2. Notes Receivable: are those supported by promissory notes
formal promises to pay in the forms of
notes. (can be non-current)
Receivables

Classifications of Non-Trade Receivables Initially Subsequently

1. “Advances to” or “receivable from”
shareholders, directors, officers or Fair Value + Amortized Cost
Transaction Cost
employees
- Ikaw ang nagpautang A/R: Face Value or Net Realizable Value
- When the problem is silent, Original Invoice Price (NRV) or Recoverable
non-current Amount - hindi sa
2. Advances to affiliates magkano nung una
- Affiliates are companies related to kundi but magkano
mo sya makokolekta/
you
marerecover
- When the problem is silent,
non-current
3. Advances to suppliers
4. Subscription Receivable
- Non-current receivable but when
you present it, you don’t present it
as non-current receivable but Net Realizable Value
rather as a deduction to equity
Accounts Receivable xx
Less: b. Net Method
Allowance for sales discount (xx) - We record the receivable at its net
Allowance for sales return (xx) amount immediately
Allowance for for freight (xx) - No adjustments kase nga nirecord
Allowance for bad debts (xx) mo na
Net Realizable Value xx - Pero if may ineexpect ka na
mangyayari pero hindi nangyari,
Sales Discount you have to revert it back
a. Trade discount - not recorded (ex. Tawad,
not included in invoice)
b. Cash discount - given to encourage for Estimation of Doubtful Accounts
earlier/prompt payment
● n/30 (within 30 days) 1. Allowance Method
● 2/10 (when paid within 10 days, - Ginagamit pag gumagawa ng
customer will get 2% discount) general-purpose financial statements
- Nagsset tayo ng adjusting entries at the
Sales Return and Allowances end of the period to estimate how much of
a. Return - there is a physical transfer of the accounts receivable will not be
merchandise collected
b. Allowance - there is a reduction in price - Matching Principle
because there is a damage, but there is
no physical transfer of merchandise (hindi Doubtful Accounts xx
na irreturn) Allowance for Doubtful Account xx

Freight Allowance for doubtful accounts xx

- Transportation cost Accounts Receivable xx
a. FOB - free on board, who will shoulder the
freight (who will record the freight Recovery:
expense), freight out for seller Accounts Receivable xx
● FOB destination - the ownership is Allowance for doubtful accounts xx
transferred on the destination, the
seller will shoulder the freight Cash xx
● FOB shipping point - the Accounts Receivable xx
ownership is transferred on the
shipping point, the buyer will 2. Direct Write-off Method
shoulder the freight
b. Freight, who will actually pay the freight N/A
● Freight prepaid - naunang bayaran
bago isakay, it is the seller who Doubtful Accounts xx
actually pays the freight Accounts Receivable xx
● Freight collect - naunang isakay
bago magbayad, it is the buyer Recovery:
who actually pays the freight Accounts Receivable xx
Doubtful Accounts xx
Journal Entry
a. Gross Method Cash xx
- We record receivable at gross Accounts Receivable xx
amount
- In practice, it is the most
acceptable
- We record the receivable as is Methods of Estimating Bad Debts
- We only deduct later on
1. Percentage of Sales → Income Statement Non-Interest Bearing: Only the Principal Amount
Approach → Doubtful Accounts Expense
- (%)(sales) = DAE Present Value
- Sales (credit sales) - value niya ngayon
a. Net sales - may bawas Amortized Cost
b. Gross Sales - walang bawas - You consider everything that happens in
- If the problem is silent, assume it is net between
sales
Will there be a time when a note receivable is
2. Percentage of Receivable → FInancial dishonored? Yes
Position Approach → Required Allowance When dishonored:
Balance Notes receivable → Accounts receivable
- (%)(receivable) = required allowance (included all the damages)
balance
- Basis is total receivable
Loans Receivable
3. Aging of Receivables → Financial Position - Is a financial asset arising from a loan
Approach → Required Allowance Balance granted by a bank or other financial
- (%)(receivable) = required allowance institution to a borrower or client
balance - Interest-bearing (always)
- Past due: magsisimula kang magbilang
kung sakaling tapos na ang kanyang Initially → Face Value
credit term Subsequently → Face Value

Measurement:
Notes Receivable - Initially: at fair value + transaction cost
- claims supported by formal promises to - Subsequently: amortized cost
pay usually in forms of notes
Transaction Price
Negotiable Promissory Notes - Fair/face value
- An unconditional promise in writing made - The amount of loan granted to the
by one person to another, signed by the borrower
maker, engaging to pay on demand or at
a fixed determinable future time a sum Steps in Loaning:
certain in money to order or to bearer. a. Application
b. Processing
Measurement - They get to know your background
- Gumagastos sila bago ka
Initially Subsequ
ently ma-approve
c. Approval/Release of the loan
Short Interest Face Face
-term Bearing Value Value Origination Fees
a. Evaluating the borrower’s financial
Non-Interest Face Face
Bearing Value Value condition
- Inaalam kung may kakayahan
Long-term Interest Face Face kang magbayad
Bearing Value Value b. Evaluating guarantees, collateral and
other securities
Non-Interest Present Amortized
Bearing Value Cost - Pwedeng pambayad (house, etc.)
c. Negotiating the terms of the loan
- Kunwari kase malapit ka na
mamatay
Interest Bearing: Principal Amount + Interest
 d. Preparing and processing the documents - Mas mataas ang financial loss kapag
related to the loan walang collateral
e. Closing and approving the loan
transaction Loan Impairment
1. Significant Financial Difficulty
- The borrower may pay the principal, 2. Breach of contract
interest, and processing fees - Hindi natutupad yung kasunduan
- Indirect Origination Fee: outright expense 3. Debt Restructuring
- Pagbabago ng mga kasunduan
2 Types of origination Fees 4. Probable that borrower will enter
a. Direct - we add bankruptcy
b. Indirect - treated as expense 5. Disappearance of an active market
6. Observable data indicating that there is a
Transaction Price xxx measurable decrease in the estimated
Direct Origination Cost xxx future cash flows
Origination Fees Received (xxx)
Measurement:
Initial Carrying Amount xxx - The difference between the carrying
amount and the present value of
Journal Entries: estimated future cash flows discounted at
Transaction Price: the original effective rate.
Loans Receivable xx
Cash xx Carrying Amount is higher than PV of estimated
cash flow = Impairment
Cash xx
Unearned Interest Income xx Three Stage Impairment Approach
a. Recognition of expected credit loss
Direct Origination Cost: Stage 1:12 months expected credit losses
Unearned Interest Income xx Stage 2: Lifetime expected credit losses
Cash xx Stage 3: Lifetime expected credit losses
b. Interest Revenue
Kung mas mataas yung nilabas mo sa nakuha Stage 1: Effective interest on gross CA
mo: Stage 2: Effective interest on gross CA
Loans Receivable xx Stage 3: Effective interest net CA (less
Cash xx allowance)
c.Receivable is
Cash xx Stage 1: Performing (initial recognition)
Direct Origination Cost xx Stage 2: Underperforming (significant
increase in credit risk)
Stage 3: Underperforming (credit impaired
Direct Origination Cost xx assets)
Cash xx

Subsequently: Amortized Cost Receivable Financing

- Is the capability or financial flexibility of the
Impairment of Loans Receivable company to generate cash out of its
receivable
Credit Risk - Receivable ay magiging cash rin naman
- Is the risk that one party to a financial pero hindi dahil nagkaroon ng collection
instrument will cause a financial loss for
the other part by failing to discharge an
obligation.
Reasons there is receivable financing: Pledging (hypothecation of receivables)
1. Mayroon siyang liabilities na naniningil na pero - Refers to borrowing of money from the
kulang yung cash na meron siya, pero nakita bank or any financial institution in which
niyang meron siyang receivables na pag receivables in general are used as a
na-collect niya in other ways na pwedeng tumapal collateral or security for a loan. Since
sa cash na need nya. receivables in general are used as a
2. Mayroong silang project/investment na gustong collateral, pledging is sometimes called
gawin pero ayaw nila manghiram ng capital, general assignment.
mayroong receivables na pwedeng iconvert sa - Just a loan transaction
cash kahit hindi pa nac-collect - Di mo pinangalan anong receivable, but
3. Mangungutang ka talaga at hindi siya papayag rather a general receivable
na pautangin ka ng walang collateral, so
gagamitin mo yung receivables mo as collateral. Receivables
A/R xx
Common Forms of Receivable Financing Sales xx
1. Pledging Return:
- refers to borrowing of money from Sales return xx
the bank or any financial institution A/R xx
in which receivables in general Payment:
are used as collateral Sales Discount xx
- You borrow money from the bank, Cash xx
now the bank asks for collateral to A/R xx
increase the chance that you will
pay the bank. (more like a *pag pinledege mo yung receivables mo walang
compensating balance) mababago sa earlier entries mo about sa
- sinasanla/pine-pledge mo yung receivable na yun
receivables mo *you will treat yung receivables as normal
- No transfer of ownership

2. Assignment Loans
- A more formal borrowing 1. Borrowing of Loans
arrangement in which the specific a. Interest not deducted in advance
receivables are identified and Journal Entry:
used as a security Cash xx
- More formal kind of pledging Loans Payable xx
- No transfer of ownership b. Interest deducted in advance
Journal entry:
3. Factoring Cash xx
- Involves the sale of receivables to Discount on L/P xx
a finance company, which is called Loans Payable xx
a factor. The factor or buyer *mas mababa yung makukuha mong cash
assumes the risk of collectivity and *Discount on L/ P - contra-liability account
generally handles the billing and
collection function. 2. Payment of Interest/Amortization of Discount
- With transfer of ownership a. No payment of interest in advance
- Si factor/buyer na bahalang Interest Exp xx
mag-collect nung A/R Cash xx
b. Payment of Interest in advance
4. Discounting of Notes Receivable Interest Exp xx
- Sale of the note to a 3rd party, Discount on L/P xx
usually a bank
Assignment Allowance for BDE xx
- Is a more formal borrowing arrangement in A/R - assigned xx
which the specific receivables are
identified and used as security. The
assignor or borrower transfers its rights in Nagabayad na si customer, innotify ka ni
some of its accounts receivable to a lessor bank:
or assignee in consideration for a loan. Loans Payable xx
- Actually, assignment is a more formal type Int. Exp. xx
of pledging of account receivable. A/R xx
Assignment is secured borrowing If may sobra:
evidence by a financing agreement and a Cash xx
promissory note both of which the A/R xx
assignor signs.
- You assign a SPECIFIC RECEIVABLE When you’re fully paid to the bank but you
- Borrower - assignor still have a receivable:
- Lender - assignee A/R xx
A/R - assigned xx
Characteristics of Assignment
1. The loan is at a specified percentage of b. Non-notifications
the face value of the collateral. Interest - You don’t notify the customer
and service fees are charged to the about the transaction therefore,
assignor. they will pay the A/R to you
- Nangutang ka pero certain Journal Entry
percentage lang yun nung A/R assigned xx
collateral mo A/R xx
2. The debtors are occasionally notified to
make payments to the assigned but most Nangutang ka na:
of the assignments are not on notification Cash xx
basis Service Fee xx
3. Assigned accounts are segregated from Loans Payable xx
other accounts. The loans payable should
be deducted from the balance of A/R If may interest expense in advance:
assigned to determine the equity in Cash xx
assigned accounts receivable. Service Fee xx
- Pag hiniwalay lumalabas yung A/R Discount on LP xx
assigned Loans Payable xx
- Collateral and obligation are
compared If may sales return:
- Equity: magkano yung hindi mo Sales Return xx
ibabayad sa kanila A/R - assigned xx
If may doubtful accounts:
Two types of assignments: Allowance for BDE xx
a. Notifications A/R - assigned xx
- You notify the customer to directly
go to the bank to pay the A/R Payment of loans:
Journal Entry - Depends on the terms/situations
A/R assigned xx If installment
A/R xx Int. Exp. xx
Loans Payable xx
If may sales return: Cash xx
Sales Return xx
A/R - assigned xx When you’re fully paid to the bank but you
If may doubtful accounts: still have a receivable:
 A/R xx b. Factoring as a Continuing Agreement
A/R - assigned xx - Maaaring kahit wala pang receivable may
agreement ka na with factor

Only difference between notification &

non-notification: SINONG MAGC-COLLECT? Journal Entries:
Cash xx
Allow. For DA xx
Factoring Interest Expense xx
- Involves the sale of receivables to a Factoring Fee xx
financing company, which is called the Receivable from factor xx
factor. The factor assumes the risk of Accounts Receivable xx
collectivity and generally handles the
billing and collection function. The sale of Sales Return & Allow. xx
receivable is on a without recourse, Receivable from factor xx
notification basis.
- Sale of receivable, hence, there is a Cash xx
transfer of ownership Receivable from factor xx
- Always on notification basis
- You’re transferring the risk or reward, Example: Credit Card
hence, there is derecognition of asset
(gain/loss) If WITH RECOURSE:
- Can be WITH RECOURSE: may habol pa, Cash xx
kung sakaling di makabayad si customer, Allow. For DA xx
si company ang bahala don, hence, Interest Expense xx
meron kang secondary liability Factoring Fee xx
Receivable from factor xx
a. Casual Factoring Loss on Recourse Oblig. xx
- Not common Accounts Receivable xx
- Automatically nageexist na yung Recourse Liability xx
receivable bago ka pa lumapit kay factor
*with casual factoring, there will be a credit to
Journal Entries: recourse liability, and an additional to the loss on
Cash xx factoring
Allowance for DA xx
Loss on Factoring xx *in the end, pag ikaw talaga nagbayad
Receivable from factor xx Recourse liability xx
A/R xx Cash xx
*pag binayaran naman ni customer in the end
Recourse liability xx
Sales Return & Allow. xx Gain on recourse liab. xx
Receivable from factor xx

Discounting of Notes
Cash xx - Is a sale of the note to a third part, usually
Receivable from factor xx a bank. The sale is usually on a with
recourse basis which means that upon the
Receivable from factor default of the debtor, the seller becomes
- Factor’s holdback liable for its maturity value.
- Security on the side of the bank
- Ibibigay rin sayo later on
 Conditional Sale Secured Borrowing
Term of Note:
Honored note: Honored note:
N/R disc. xx Liab on N/R disc. xx
N/R xx N/R xx

Formulas: Dishonored note: dishonored note:

1. Net Proceeds = Maturity Value - Discount A/R xx A/R xx
- Proceeds: kabuuan ng makukuhang pera Cash xx Cash xx
2. Maturity Value = Principat + Interest
3. Interest = Principal x Rate x Time *wala ‘tong mga to ‘ pag without recourse
- Time: date of the note → maturity date
4. Discount = Maturity Value x Discount rate x
discount time
- Discount rate: different rate between
customer and bank, different from rate
- Discount time: (discount date → maturity
date)
5. Carrying Amount = Principal + Accrued
Interest
6. Accrued Interest = Principal x Rate x Time (up
to discount date)
7. Gain/(Loss) on Discounting = Net Proceeds -
Carrying Amount

Journal Entries

*if without recourse

Cash (Net Proceeds) xx
Loss on N/R discounting xx
N/R xx
Interest Inc. (acc.int) xx

*if with recourse

a. Conditional Sale
- May obligation, secondary liability
if hindi magbabayad si customer
- Journal Entries:
Cash (Net Proceeds) xx
Loss on N/R discounting xx
N/R discounted xx
Interest Inc. (acc.int) xx
b. Secured Borrowing
- Hindi totoong bentahan, utangan
lang, pero may pambayad na
- Journal Entries
Cash (Net Proceeds) xx
Interest Expense xx
Liability on N/R disc. xx
Interest Inc. (acc.int) xx