RECEIVABLES ACCOUNTING

Receivables- are assets that represent contractual rights to receive cash or other asset
from another entity

TRADE OR NON-TRADE RECEIVABLES

​ Trade receivables are receivables arising from the sale of goods or services in
the ordinary course of business. It includes accounts and notes receivables. It is
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 represent claims arising from sources other than the sale
merchandise or services in the ordinary course of business. It is classified as current
assets only when they are expected to be realizable in cash within one year. If
collectable beyond one year, classified as non-current assets

Examples:
a.​ “Advances to” or “receivables from” shareholders, directors, officers, or
employees Current Assets

b.​ Advances to affiliates Non-current Assets

c.​ Advances to suppliers Current Assets

d.​ Subscription receivables- if not stated, it should be a non current asset and
treated as a deductions in equity, but if stated as current asset, it is an addition to
the asset

e.​ Creditors’ account with debit balances- as a result of overpayment or returns and
allowances are classified as current assets

* Offsetting is not allowed unless immaterial

f.​ Special deposits on contract bids- normally are classified as non-current assets
because such deposits are likely to remain outstanding for a considerable long
period of time

g.​ Accrued Income Current Assets

h.​ Claims receivable Current Assets
Accounts Receivable- are open account arising from the sale of merchandise or
services in the ordinary course of business and not supported by promissory notes
​
FINANCIAL STATEMENTS PRESENTATION
​ Trade receivables and Non-Trade receivables which are currently collectable
shall be presented on the face of the statement of financial position as one line item
called trade and other receivables
CUSTOMERS’ CREDIT BALANCES

​ Customers’ credit balances are credit balances in accounts receivable resulting

from overpayments, returns and allowances, and advance payments from customers.
Customers’ credit balances are classified as current liabilities and are not offset
against the debit balances in other customer’s accounts, except when the same is
immaterial.

​ For example, ABC Co. has a receivables of $10,000 from customer A.

Subsequently, customer A remits $16,000 to ABC Co. representing payment for the
existing liabilities and the excess as advance payment for the future delivery of goods.

Cash —------------------------------------------------- 16,000

​ Accounts receivable —------------------------- 16,000
* To record the collected receivables from customer A

Adjusting Entry:

Accounts Receivable —------------------------------------ 6,000

​ Advances from customers —------------------------ 6,000
INITIAL MEASUREMENT OF ACCOUNTS RECEIVABLES
​ Accounts receivable shall be recognized initially at face amount or original
invoice amount. The amount that was stated in invoice or the original amount to be
collected

SUBSEQUENT MEASUREMENT OF ACCOUNTS RECEIVABLE

​ Provides that after the initial recognition, accounts receivable shall be measured
at amortized cost. Actually, the amortized cost is the net realizable value of accounts
receivable. Net realizable value of accounts receivable is the amount of cash expected
to be collected or the estimated recoverable amount
Accounts Receivable
​ Allowance for freight charge
​ Allowance for sales return
​ Allowance for sales discount
​ Allowance for doubtful accounts
Net Realizable Value =

ALLOWANCE FOR FREIGHT CHARGE

FOB Destination- means that ownership of the goods purchased is vested in the buyer
upon receipts thereof. Accordingly, the seller shall be responsible for the freight charge
up to the point of destination

FOB Shipping Point- means that ownership of the goods purchased is vested in the
buyer upon shipment thereof. Thus, it is incumbent upon the buyer to pay for the
transportation charge from the point of shipment to the point of destination

Freight Collect- freight charge is actually paid by the buyer

Freight Prepaid- means that freight charge on the goods shipped is already paid by the
seller

For example, On December 27, 20x1, ABC Co. received a sale order for a credit
sale of goods with a selling price of $1,000. ABC Co. shipped the goods on December
31, 20x1. The buyer received the goods on January 2, 20x2. The related shipping costs
amounted to $10. ABC Co. collected the receivable on January 5, 20x2
Journal Entry:

A.​ FOB Shipping point, Freight Collect (buyer - buyer)

Dec. 27 ​ No Entry

Dec. 31 ​ Accounts receivable —--------------------------------- 1,000

​ ​ ​ Sales —---------------------------------------------- 1,000

Jan. 2 ​ No Entry

Jan. 5 ​ Cash —----------------------------------------------------- 1,000

​ ​ ​ Accounts receivable —--------------------------- 1,000

B.​ FOB Destination, Freight Prepaid (seller - seller)

Dec. 31 ​ Prepaid Freight —----------------------------------------- 10

​ ​ ​ Cash —-------------------------------------------------- 10

Jan. 2 ​ Accounts receivable —----------------------------------- 1,000

​ ​ ​ Sales —------------------------------------------------ 1,000

​ ​ Freight-out —------------------------------------------------ 10
​ ​ ​ Prepaid Freight —------------------------------------- 10

Jan. 5 ​ Cash —-------------------------------------------------------- 1,000

​ ​ ​ Accounts receivable —------------------------------ 1,000

C.​ FOB Shipping point, Freight Prepaid (buyer - seller)

Dec. 31 ​ Accounts Receivable —----------------------------------- 1,010

​ ​ ​ Sales —-------------------------------------------------- 1,000
​ ​ ​ Cash —--------------------------------------------------- 10

Jan. 2 ​ No Entry

Jan. 5 ​ Cash —-------------------------------------------------------- 1,010

​ ​ ​ Accounts receivable —------------------------------ 1,010
 D.​ FOB Destination, Freight Collect (seller - buyer)

Dec. 31. ​ No Entry

Jan. 2 ​ Accounts receivable —------------------------------------- 990

​ ​ Freight out —-------------------------------------------------- 10
​ ​ ​ Sales —----------------------------------------------------- 1,000

Jan 5 ​​ Cash —--------------------------------------------------------- 990

​ ​ ​ Accounts receivable —---------------------------------- 990

ALLOWANCE FOR SALES RETURN

​ The measurement of account receivable shall recognize the probability that some
customers will return goods that are unsatisfactory or will make other claims requiring
reduction in the amount due as in the case of shipment shortages and defects
​ For example, an amount of $50,000 of accounts receivable at year-end represent
selling price of goods that will probably be returned

Sales Return —---------------------------------------------- 50,000

​ Allowances for Sales Return —---------------------- 50,000

ALLOWANCE FOR SALES DISCOUNT

a.​ Gross Method- The accounts receivable and sales are recorded at gross
amount of the invoice

1.​ Sales of Merchandise for 100,000, terms 5/10, n/30

Accounts Receivable —------------------------------------ 100,000

​ Sales —------------------------------------------------------ 100,000

2.​ Assume collection is made within the discount period

Cash —--------------------------------------------------------- 95,000

Sales Discount —-------------------------------------------- 5,000
​ Accounts Receivable —-------------------------------- 100,000

3.​ Assume collection is made beyond the discount period

 Cash —--------------------------------------------------------- 100,000
​ Accounts Receivable —---------------------------------- 100,000

b.​ Net Method- The accounts receivable and sales are recorded at net amount of
the invoice or at the invoice price minus the cash discount whether taken or not
taken

1.​ Sale of Merchandise for 100,000, terms 5/10, n/30

Accounts Receivable —------------------------------------ 95,000

​ Sales —---------------------------------------------------- 95,000

2.​ Assume collection is made within the discount period

Cash —--------------------------------------------------------- 95,000

​ Accounts Receivable —-------------------------------- 95,000

3.​ Assume collection is made beyond the discount period

Cash —--------------------------------------------------------- 100,000

​ Accounts Receivable —--------------------------------- 95,000
​ Sales discount forfeited —------------------------------ 5,000

ACCOUNTING FOR BAD DEBTS

a.​ Allowance Method- requires recognition of a bad debt loss if the account are
doubtful of collection

1.​ Accounts of 30,000 are considered doubtful of collection

Doubtful Accounts —---------------------------------------------- 30,000

​ Allowance for doubtful accounts —------------------------ 30,000

2.​ The accounts are subsequently discovered to be worthless or uncollectable

Allowance for doubtful accounts —---------------------------- 30,000

​ ​ Accounts receivable —--------------------------------------- 30,000

3.​ The same accounts that are previously written off are unexpectedly recovered or
collected
​ Accounts receivable —-------------------------------------------- 30,000
​ ​ Allowance for doubtful accounts —------------------------ 30,000

​ Cash —---------------------------------------------------------------- 30,000

​ ​ Accounts receivable —---------------------------------------- 30,000

b. Direct writeoff method- requires recognition of bad debts loss only when the
accounts proved to be worthless or uncollectable

1.​ Accounts of 30,000 are considered doubtful of collection

No entry is necessary

2.​ The accounts proved to be worthless

Bad debts —----------------------------------------------------------- 30,000

​ Accounts receivable —----------------------------------------- 30,000

3.​ The same accounts that are previously written off as worthless are recovered or
collected

​ Accounts receivable —------------------------------------------------- 30,000

​ ​ Bad debts —---------------------------------------------------------- 30,000

​ Cash —--------------------------------------------------------------------- 30,000

​ ​ Accounts receivable —--------------------------------------------- 30,000

DOUBTFUL ACCOUNTS IN INCOME STATEMENT

1.​ Selling expense or 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 selling expense or
distribution cost

2.​ Administrative expense

​ If the granting of credit and collection of accounts are under the charged of
an officer other than sales manager, doubtful accounts shall be considered as
administrative expense