Module on Accounts Receivable position as a one line item called “Trade

and other receivables”.

 Receivables – classified into TRADE
receivables and NONTRADE receivables.
 Customers’ credit balance (credit balance in
1. Trade receivables – receivables
accounts receivable) – current liabilities and
arising from sale of goods or
NOT OFFSET AGAINST ACCOUNTS PAYABLE.
services in the ordinary course of
business.
Example: A Co. has an outstanding
 Current when it is realizable
receivable of P120,000. Subsequently,
within normal operating cycle
Customer B paid P150,000 to A Co.
OR one year, whichever is
longer.
Entry:
*Normal operating cycle is the
Cash P150,000
time between the acquisition
Accounts Receivable P150,000
of assets for processing and
their realization in cash. If Accounts Receivable
normal operating cycle is
P120,000 - balance
unidentifiable, it is assumed to
P150,000 - collection
be 12 months.
2. Nontrade Receivables – claims P130,000 .
arising from other sources. – credit balance
 Current when realizable
within one year. The credit balance SHOULD NOT be offset
Examples of NTR against the debit balance. So an adjusting entry
1. Advances to, receivable from, due is needed to eliminate the credit balance.
from shareholders, directors or AJE:
employees. (Silent- current) Accounts Receivable P150,000
2. Advances to affiliates/subsidiary Customers’ credit balance P150,000
(Silent- noncurrent)
3. Advances to supplier for purchase *This example is the same with Creditor’s
of goods. (Silent- current) Account.
4. Subscription Receivable – current if
collectible within one year. (Silent- Other examples:
deduction from Subscribed share
1. Trade receivables (including customers’ credit
capital)
balance of P150,000) – P1,500,000
5. Special deposits on contract –
current if collectible within one year. Answer: (1,500,000 + 150,000) = P1,550,000
(Silent- noncurrent)
2. Debit balance in Accounts Payable of P150,000
6. Accrued dividends receivables,
accrued rent income, accrued Answer: Should be included in accounts
royalties, accrued interest. (Silent- receivable and not offset against the balance of
current) Accounts Payable.
7. Claims receivable (Silent- current)
8. Creditor’s account (debit balance  Financial Asset is initially measured @fair
in accounts payable) due to value plus transaction costs that are
overpayment, returns, and directly attributable to the acquisition.
allowances – current asset and NOT  Accounts Receivable – short term
OFFSET AGAINST ACCOUNTS receivable is recorded initially @face
PAYABLE. amount or original invoice amount.

 Trade and nontrade receivables that are *For short term receivables, fair value is
currently collectible are combined and equal to face amount.
presented on statement of financial
  Accounts receivable shall be measured
subsequently @Net Realizable Amount
(NRA)

NRA – amount of cash expected to be

collected or the estimated
recoverable amount.

 In estimating NRA of trade receivables,

the ff. deductions are made:
a) Allowance for freight charge
b) Allowance for sales return
c) Allowance for sales discount
d) Allowance for doubtful accounts

Allowance for freight charge

Example: Sold goods amounting to P150,000.

Terms are 2/10, n/30, FOB destination, freight
collect, freight charge is P3,000.

Accounts Receivable P150,000

Freight out 3,000
Sales P150,000
Allowance for freight charge 3,000

Payment within discount period

Cash 144,000
Sales discount 3,000
Allowance for freight charge 3,000
Accounts Receivable 150,000
Owner of Who will Who pays
Legend: goods in shoulder the
S-Seller transit the freight
B-Buyer freight cost?
costs?
FOB Destination,
Freight Prepaid S S S
FOB Destination,
Freight Collect S S B
FOB Shipping Point,
Freight Prepaid B B S
FOB Shipping Point,
Freight Collect B B B