ACCOUNTS RECEIVABLE

- financial assets that represent a contractual right to receive cash

- classified into:
1. Trade receivables
- claims arising from sale of merchandise or services in the ordinary
course of business
- current assets
accounts receivable — open accounts or those not supported with a
promissory note.
notes receivable —- are those supported by formal promises to pay in the
form of notes.

2. Nontrade receivables
- claims arising from sources other than the sale of merchandise or
services in the ordinary course of business
- current assets — within 1 year of the operating cycle
- noncurrent — collectible beyond 1 year
- example:
1. Advances to or receivables from shareholders, directors, etc.
2. Advances to affiliates
3. Advances to supplier
4. Subscriptions receivables
5. Creditors's accounts
6. Special deposits, but if collectible for 1 year is considered
current assets
7. Accrued income
8. Claims receivable

Customer’s credit balances

- are credit balances in accounts receivable resulting from overpayments, returns,
allowances and advance payments from customers
- current liabilities

Initial measurement of receivables

- financial assets shall be recognized at fair value plus transaction costs

for short-term receivables — fv is face value

for long-term receivables

— with interest-bearing the fv is face value
— noninterest-bearing the fv is present value

ACCOUNTS RECEIVABLE
- open accounts arising from sale of merchandise or services in the ordinary course of
business
- measured initially at face value
- subsequently, shall be measured at net realizable value
 Terms related to freight charge
FOB destination — means the ownership of the goods purchased is vested in the
buyer upon receipt.
FOB shipping point — means ownership of the goods purchased is vested in the
buyer upon shipment.
freight collect — freight charge on the goods shipped is not yet paid, is actually paid
by the buyer.
freight prepaid — means freight charge on the goods shipped is already paid by the
seller.

Accounting for freight charge

1. to record sale
AR — 100,000
Freight out — 5,000
Sales — 100,000
Allow. for freight charge — 5,000

2. to record collection within discount period

cash — 93,000
sales discount — 2,000
allow. for freight charge — 5,000
accounts receivable — 100,000

Allowance for sales return

- the probability that some customers will return goods that are unsatisfactory or will
make other claims requiring reduction of amount
entry:
sales return — 50,000
allow. for sales return — 50,00

Sales discount
- reduction from invoice price by reason of prompt payment
sales discount — seller
purchase discount — buyer
- may be expressed 5/10, n/30 means the customer is entitled to a 5% discount if
payment is made in 10 days from the invoice date.

Methods of recording credit sales

1. gross method
record sale of merchandise
AR — 100,000
Sales — 100,000
assume collection is made within discount period
Cash — 95,000
SDiscount — 5,000
AR — 100,000
 assume collection is made beyond discount period
Cash — 100,000
AR — 100,000
2. net method
sale of merchandise
AR — 95,000
Sales — 95,000
asume collection is made with discount period
Cash — 95,000
AR — 95,000
assume collection is made beyond discount period
Cash — 100,000
AR — 95,000
SD forfeited — 5,000

sales discount forfeited is classified as other income.

Allowance for sales discount

for example, of the accounts receivable of P1,000,000 at the end of the period, it is reliably
estimated that discounts to be taken will amount to 50,000
entry:
Sales discount — 50,000
Allow. for sales discount — 50,000

Accounting for bad debts

- business entities sell on credit rather than only cash to increase sales and thereby
increase income
- however, an entity that sells on credit assumes the risk that some customers will not
pay their accounts
- two methods in accounting for bad debts
1. Allowance method
accounts of P30,000 are considered doubtful of collection
Doubtful accounts — 30,000
Allow. for doubtful accounts — 30,000
the accounts are subsequently discovered to be worthless or uncollectible
Allow. for doubtful accounts — 30,000
Accounts receivable — 30,000
accounts are unexpectedly recovered or collected
AR — 30,000
Allow. for DA — 30,000

Cash — 30,000
AR — 30,000

2. Direct writeoff method

accounts of P30,000 are considered doubtful of collection
No entry is necessary
the accounts proved to be worthless
 bad debts — 30,000
AR — 30,000
the same accounts that are previously written off as worthless are recovered
or collected
AR — 30,000
Bad debts — 30,000

Cash — 30,000
AR — 30,000

if the recovery is subsequent to year of writeoff and the direct writeoff method
is used, the recovery may simply be credited to other income

Methods of estimating doubtful accounts

- doubtful accounts are recognized when the loss is probable and the amount can be
estimated reliably
- Three methods of estimating doubtful accounts
1. Aging the accounts receivable or “statement of financial position approach”
2. Percent of accounts receivable or also statement of financial position
approach
3. Percent of sales or “income statement approach”

Aging of accounts receivable

- an analysis of accounts where they are classified as not due or past due.

Percent of accounts receivable

- a certain rate is multiplied by the open accounts at the end of the period in
order to get the required allowance balance.
- example:
the balance of accounts receivable is P2,000,000 and the credit balance in
the allowance for doubtful accounts is P10,000. Doubtful accounts are
estimated at 3% of accounts receivable.

required allowance (3% x 2,000,000) — 60,000

less: credit balance in allowance — 10,000
Doubtful accounts expense == 50,000
 Percent of sales
- The amount of sales for the year is multiplied by a certain rate to get the
doubtful accounts expense. The rate may be applied on credit sales or total
sales.
- example:
The following accounts are gathered from the ledger
AR — 1,000,000
Sales — 5,050,000
Sales return — 50,000
Allow. for doubtful accounts — 20,000

if doubtful accounts are estimated at 1% of net sales, the doubtful accounts

expense is P50,000 (1% x P5,000,000) and recorded as follows:

Doubtful accounts — 50,000

Allow. for doubtful accounts — 50,000

The resulting amount of the computation is already the amount of the

doubtful accounts expense and not the required allowance, in
contradistinction with the aging method and the percent of accounts
receivable method.

Correction in allowance for doubtful accounts

- where the allowance is inadequate or excessive, a question arises as to the proper
treatment of the discrepancy, whether to consider it as an error or a component of
profit or loss
- the correction is to be reported in the income statement either as an addition to or
subtraction from doubtful accounts expense
- Accordingly, an inadequate allowance is adjusted as follows:

Doubtful account — xx
Allow. for doubtful accounts — xx

Debit balance in allowance account

- the allowance for doubtful account normally has a credit balance however there are
instances that it may have a debit balance
- For example, On January 1, the allowance account before adjustment has a credit
balance of P30,000 and during the year, an account of P50,000 is written off and
recorded as follows:

Allow. for DA — 50,000

AR — 50,000

Thus, on December 30th one that allowance has debit balance of P20,000
before adjustment.
 The charge to the allowance accounts simply predates the recording of doubtful
accounts. At the end of the period when adjustments are made, the debit balance
should be considered.

To continue the example — if on December 31, the required allowance is P40,000,

the adjustment should be:

DA— 60,000
Allow. for DA— 60,000

Required allowance — 40,000

Add: debit balance in allowance — 20,000
Doubtful accounts expense == 60,000

Doubtful accounts in the income statement

1. Distribution cost
- If the granting of credit and collection of accounts are under the charge of the
sales manager, doubtful accounts shall be considered as distribution costs.

2. Administrative expense
- If the granting of credit and collection of accounts are under the charge of an
officer other than sales manager, doubtful accounts shall be considered as
administrative expense.

In the absence of any contrary statement, doubtful accounts shall be

classified as administrative expense.
MIDTERM - SOCIO

LESSON 5- market integration

A. INTERNATIONAL FINANCIAL INSTITUTION AND THEIR ROLE IN THE GLOBAL

ECONOMY
- IFIs are institutions that provide support through loans or grants and technical
advices to promote a country's economic and social development
- IFIs have a significant role in global economic development. They provide
financial and technical services and products not for profit but for overall
economic and social development
- IFIs provide loans, technical assistance and policy based lending:
macroeconomic stability and providing the necessary infrastructure and
systems sector reforms in creation of safety nets through policy-based
lending.
- They also work with the private sector for investment and policy reforms. To
promote private sector expansion (International Finance Corporation).
- Critical actor in the contemporary world.
- There are 4 key issues with the IFI, which include legitimacy, effectiveness,
support conditionality and financial capacity, and sustainability.

B. A SUMMARIZED HISTORY OF THE GLOBAL ECONOMY

- The modern capitalist world economy, the modern capitalist world economy
flourished between the 16th to 18th centuries. The start of modern global
trade, leading to 1914 was considered the first period of globalization.

- From the second World War to the late 1990s, the modern international
economic enabling architecture was established.

- In addition, we see the expansion of MNCs across the globe supported by

enabling policies and improved communications and transport.

- However, the euphoria of globalization and global free trade was put into
question by the 1994/95 Mexico crisis. When Mexico's multi-billion loan from
IMF created a negative spillover effect on US Europe, Portugal and Spain.

- From the late 1990s, until very recently, Bhavarga contends and characterizes
the third wave of market integration. We see the advent of the modern
internet, the WTO establishment and the formal entry of China into the trading
system through its accession to international financial institutions.

- As the world enters what the World Economic Forum argues as the “Fourth
Industrial Revolution”, Mueller predicted that there will be slower economic
growth and political destabilization and diffusion of power.
C. THE GLOBAL CORPORATION

- Aside from IFI's and governments, one of the major players in globalization
and the modern capitalist market is the global corporations.

- The number of global corporations from emerging market economies listed in

the fortune global 500 Rose from 47 firms in 2005 to 95 and 2010.

- The modern global corporations are commonly referred to as multinational

corporations and transnational corporations. More often, they are used
interchangeably.

- The one offers categorizations to distinguish an MNC from a TNC. He argues

that both types of corporations are importers and exporters and have
investments in many countries. Nevertheless, he further contends that MNCs
still provide central decisions compared to TNCs that provide individual
foreign market investment to have their own operations and systems.

- To the girls of global corporations from emerging economies, the capital flows
have now started to change from the dominant, North-North/South-South to
South-South and South-North capital flows, most of the South-North coming
from China and India. For instance, China's Lenovo corporation bought IBM's
PC business.

D. GLOBAL GOVERNANCE

- Is the capacity within the international system at any given moment to provide
government-like services and public goods in the absence of a world
government.

- It is a combination of informal and formal ideas, values, rules, norm,

procedures, practices, policies and organizations that help all actors—states,
IGOs, civil society and NGOs, TNCs, and individuals—identify, understand
and address transboundary problems.

- Today, a gross disconnect is apparent between the nature of a growing

number of contested global problems ( Climate change, the proliferation of
weapons of mass destruction, terrorism, mass atrocities, financial volatilities,
cyberthreats, transnational crime, and pandemics) and the political structures
for international problems solving and decision-making.

E. UNCERTAINTY OF THE SOVEREIGN TERRITORIAL STATE OR NATION-STATE

- Since the end of the cold war, the world is heading toward a less centralized
form of government. As the United States is facing serious setbacks in the
wars in Iraq and Afghanistan, many emerging powers, such as China, Russia
 and Brazil have formed regional alliances to create a multipolar and
anti-hegemonic order.

- This development is being referred to as the beginning of the “post-American

world” in which the United States retreats and the rest of the world advances
in economic power and political influence.

- This is in Stark contrast to the kind of political entity which determined our
lives, the sovereign territorial state or “nation-state”. In fact, most Western
countries have lived under this kind of state since the 18th century or possibly
earlier. This kind of state has become the universal framework of social
development.

- However, after centuries of serving as an example to most if not all sovereign

countries, this kind of state is entering a face of uncertainty.

- As a review, the notion of nation-state has the following elements:

a. Continuous and broken territory (preferred)
b. Sovereign territory
c. The state has the monopoly both of law and of the powers of coercion
d. The national state rules its citizens or subjects directly and not through
intermediate authorities
e. Direct government and administration of inhabitants, by the central
authorities of the “nation-state”.
f. The state is considered to represent the people and the people serve
as a source of sovereignty or at least give the state legitimacy.
g. The citizenry was ought to form a homogeneous population.

F. THE RISE OF THE NON-STATE ACTORS

- A huge rise of non-state actors resulted from the occurrence above
mentioned. These international organizations and the public and private
sectors are set with higher objectives and goals to participate in global
governance in improving lives
.
- The growth of non-state actors has meant more diversity in potential players
and partners. The proliferation of actors that are legitimately representing
stakeholders and contributing concretely to contemporary global problem
solving means that we have come a long way from the state-centric model of
traditional International Relations.

- The proliferation of non-state actors has ushered in an age of global

partnership between private and public bodies on specific issues.
G. THE UNITED NATIONS
- One important example of a non-state actor, an international government
organization (IGO) playing a vital role in the world's affairs, is the United
Nations.
- Is an IGO designed to make the enforcement of international law security,
human rights, economic development and social progress easier for countries
around the worldIs an iGo designed to make the enforcement of international
law security, human rights, economic development and social progress easier
for countries around the world.
- The UN today is divided into 5 branches.
1. The UN General Assembly — is the main decision-making and
representatives assembly and is responsible for upholding the
principles of the UN through its policies and recommendations. It is
composed of all member states and headed by a President elected by
the member states.
2. The UN Security Council — can authorize the deployment of UN
member states’ militaries, can mandate a ceasefire during conflict and
can enforce penalties on countries if they do not comply with given
mandates.
3. The International Court of Justice — can settle according to
international law, legal disputes between states and give opinions
mostly advisory, on legal questions brought to it by UN organs and
agencies.
4. The Economic and Social Council — assists the UN General
Assembly in promoting economic and social development as well as
cooperation of member states.
5. The Secretariat — Headed by the Secretary-General, provides
studies, information, and other dates when needed by other UN
branches for their meetings.

H. THE G2O+ and A NEW FRAMEWORK FOR GLOBAL CORPORATION

- In a globally integrated world economy, the need for global collective action
and stability is almost universally recognized.
- The proposed new framework for global economic cooperation with a
competent and accountable coordination body (the G20+) and connected to a
representative global system (the UN) aims to preserve global economic
stability and to ensure that the global economy continues to grow inclusively
to benefit all nations and peoples equitably.

- A core function structure membership and ties to the UN of the G20+ within
the wider new framework for global economic cooperation includes the
following incredible functions:
1. Facilitate multi-stakeholder, cross-disciplinary dialogue and policy
solutions.
2. Promote inclusive economic reform
3. Enable global economic crisis response
I. THE INTERNATIONAL LAW AND NATIONAL LAW
- International law regulates relations of states and international persons. It is
derived from treaties, international bus stamps and general principles of law.
If conflict arises the same as results from state to state transactions.
- National law regulates relations of individuals among themselves or within the
state. It consists of stage authority, enactments, executive orders and judicial
pronouncements. If there is conflict the same as redress through local
administrative and judicial processes.
- doctrine of principle
- doctrine of transformation

J. INTERNATIONAL CONVENTIONS AND THE INTERNATIONAL CUSTOMS

- International conventions are international agreements conducted between
states and written form and governed by international law, embodied either in
a single instrument or in two or more related instruments and whatever its
particular designation.
- bilateral treaties
- multilateral treaties
- International customs, aka customary law, consists of rules derived from the
consistent conduct of sales, acting out of the belief that the law required them
to act that way
- for a custom to be deemed as an international custom, these two elements
must exist: state practice and opinio juris sive necessitates “opinion of law or
necessity”
- kinds of international custom are: regional custom and special or local custom

K. JUS COGENS AND OBLIGATIONS

- Jus cogens occupy another category of international customs as these refer
to norms that command peremptory authority, superseding conflicting treaties
and customs which can neither be derogated nor modified except by a norm
or similar character.
- Obligations erga omnes refers to an obligation under general international law
that a state owes in any given case to the international community, in view of
its common values and its concern for compliance, so that a breach of that
obligation enables all states to take action blah blah
- Examples of this are prohibitions of acts of aggression, on genocide, and on
the protection of basic human rights.
L. TREATIES
- is an international agreement conducted between states, in written form and
government by international law, embodied either in a single instrument or in
two or more related instruments and whatever its particular designation.
- Steps in treaty making involves
(1) negotiation
(2) signing of treaty by the representatives
(3) exchange of ratification instruments
(4) ratification of the treaty by the constitutional organs of the respective
states
(5) registration with and publication by the Secretariat of the UN
- a state is obliged to refrain from acts which would defeat the object and
purpose of a treaty when it has signed the treaty or has exchanged
instruments constituting the treaty subject to ratification, acceptance of
approval, until it shall have made its intention clear not to become a party of
the treaty
- The power of the President to ratify a treaty is well-entrenched in the 1987
Constitution.
- Pacta tertiis nec nocent nec prosunt — “A treaty binds the parties and only
the parties”
- Pacta sunt servanda — “Agreements must be kept”
- Rebuc sic stantibus — “Things standing thus”

M. EXECUTIVE AGREEMENT AND CONCORDAT

- An executive agreement is an agreement concluded by the President based
on authority granted by Congress or based on the inherent authority granted
to him/her by the Constitution.
- This is distinguished from a treaty as the latter pertains to a covenant
concluded by the President with the advice and consent of the Senate.
- No treaty or international agreement shall be valid and effective unless
concurred in by at least two-thirds of all the members of the Senate
- A concordat is a treaty or agreement between the Pope and a state or
government that deals with religious matters as well as the recognition and
privileges of the Holy See in other states.