CURRENT ACCOUNTS RECEIVABLES

•Trade Receivables
 Accounts Receivable
 Notes Receivable
 Installment Receivable
• Other Receivables
(non-trade receivables)
 Accrued interest receivable
 Accrued interest income
 Rent Receivable
 Dividends Receivable – Assigned and Unassigned
 Advances to Employees
 Advances to Officers
 Subscription Receivable (collectible within one year)
o (if collectible beyond one year - deduction from Subscribed Share Capital)
 Claims receivable
 Due from Suppliers
 Creditor's debit balance (Accounts Payable debit balances)
 Claims against common carries
 Advances to Suppliers
 Trade Installment Receivables
+ Postdated Check from Customer
+ NSF Check from Customer
NON-CURRENT ACCOUNT RECEIVABLES (Generally. Subject to change if due is near)
• Other Receivables
 Advances to Affiliates
 Advances to Subsidiaries
 Claims for tax refunds
 Subscription Receivable
 Security Deposits
 Deposit Contract
 Deposits to guarantee performance or payment to cover possible damages or losses

less: Overpayment of collection

Merchandise return + Credit balance of Customer

Accounts Receivable XXX

Less: Allowance for Doubtful Accounts (XXX)
Net of Realizable Value XXX
*Amortized cost of AR is same as the net realizable value (Allowances Deducted)
Amount of ADA: GR: Amount Stipulated. E: % of amount uncollectible

COGS XXX
+ Gross Margin on Sales/ Mark-up on Cost XXX
Gross sales XXX
(Cash sales) (XXX)
Credit sales XXX
+ AR beg XXX
Total XXX
(AR collected) (XXX)
AR end XXX

Doubtful accounts expense for the current using

(aging method is in used) Compute aging:
Required allowance
+ debit balance in Allowance
Doubtful account Expense

ADA for the year end:

ADA beg XXX
+ DA Expense XXX
Total XXX
Accounts written off (XXX)
ADA end XXX

Allowances:
 Sales Return
 Sales Discount
 Freight Charge
 Written off
 Allowances to customers for shipping damages
 Allowances for uncollectible accounts

Measurements:
 AR: Initial/ Short term: Face Value or Invoice
Subsequent/ Long term: Amortized Cost or NRV
 Trade Receivables: Initially @ Transaction Price
 Cash Discounts: 3 method –
o Gross price: Both AR and Sales initially recorded at gross w/o recognition of available cash
discount until actually taken.
 o Net: Both AR and Sales recorded at sales price less AR discount (Net) @ amortized cost.
o Allowances: AR recorded @ gross sales price, Sales recorded at net amount and available cash
discount recorded as credit in the valuation account, ASD.
 Freight: FOB SP, C; FOB D,C; FOB SP,P; FOB D,P
 Bad Debts: 2 methods –
o Allowance: Silent
o Direct write-off: No allowance account
 Bad Debts: 2 approaches –
Approach What is used(Basis) What is Solved What amount is used
Balance Sheet AR Allowance for BD (or Age) Difference of Computed*
Income Statement Sales BD Expense Computed amount
* Difference between the computed amount and the Allowance for BD established

ACCOUNTS RECEIVABLE NOTES:

 The selling price of goods on consignment is excluded from AR because the goods are still unsold
 The cost of the consigned goods should be included in inventory
 Collection of Accounts Written off: Effect is off setting
 Bad Debt Recovery is income asset
 The security deposit is noncurrent AR
 SD forfeited – other operating income in Profit/Loss @ SCI
 Jan 1 balance after deducting credit balance of X – add back

Eg. 1 Cash received from credit customers, all of whom took advantage of the discount feature of the credit
terms 4/10, n/30. 3,024,000
Gross account: 100%
Cash discount: 4%
Net amount: 96%
3,024,000 ÷ 96%= 3,150,000
Sales discount 3,150,000 x 4% = 126,000
Cash received from credit customers = 3,024,000

Eg. 2 The entity established an ADA estimated at 5% of credit sales.

Written off: 50,000
Sales on account
Provision fro doubtful accounts (8.4m x 5%) 420,000
Accounts written off (50,000)
Ada end 370,000
NOTES RECEIVABLES
 Recording it not in face value because of time value of money
 TVM – value of money if it will be recorded today
 Interest rate should not exceed discount
 Discount is contra-asset account
 If no Effective rate given: Prorate the unearned
 Amortized Cost = Carrying value

 Interest Bearing – Interest stated at face. The fair Value is its Face Value
 Non-interest Bearing (Zero interest Bearing) – Interest not stated at face
 GR: When exchanged for property/services, transaction is recorded @ Fair value of goods
o E: Fair Value of notes is more determinable
o E-E: Neither FV is determinable, imputed rate is used to determine note’s PV
 When interest rate is unrealistic, it means Nominal rate is higher or lower then the Effective rate

Installment – Low:
Discount (NR – (Notes Rec. – (Yield percentage * Nominal rate) w/ Single)
CASH payment yearly w/ Interest
Installment – High:
Gain: Present Value – Carrying Value

Difference between face value of NR and its present value:

 Discount on NR: Excess of FV of note over its PV is credited to NR > VC/PV
 Premium on NR: Excess of PV of note over its FV is charged to
 Unamortized discount is deducted from the ledger balance of NR
 Unamortized premium is added to the balance of NR
NR Discount/UII/IR CV
Date *Transaction date* Eg. 4M / 4M
*First payment* Usually Dec. 31 Eg. 4M / 3M
If no annual installment/payment: Amount in NR is constant
If there is: Amount in NR decreases (As NR being paid)
Interest bearing: Interest per annum
If silent, the problem is compound. Which means the principle used for computation of interest increases as
payment increases annually (or semi-annually)
Note 4,000,000, 10% per annum.
Initial entry: NR 4,000,000
1-1-2020 Cash 4,000,000
12-31-2020 Interest Rec. 400,000 (4M * .10)
Interest income 400,000
12-31-2021 IR 440,000 ((4M + 400,000) * .10)
II 440,000
12-31-2023 IR 532,400 ((4M + 400K + 440K + 484) * .10)
II 532,400
Cash 5,856,400
NR 4,000 ,000 (NR from start)
IR 1,856,400 (Interest sum)
WHAT IF: Yearly installment 1M
Initial entry: Same
12-31-2020 Cash 1,400,000
NR 1,000,000
II 400,000
12-31-2021 Cash 1,300,000
NR 1,000,000
II 300,000
Non-interest Bearing - Single Payment: If no Effective rate given: Prorate the unearned
Eg. 1) 1-1-2020 Note 2,000,000, prevailing rate 5%. Due 12-31-2023
NR UII/ IR/ Discount CV
1-1-2020 2M 354,595 1,645,405
12-31-2020 2M 272,325 1,727,675
12-31-2021 2M 185,941 1,814,059

12-31-2020 Discount 82,270

Interest Revenue 82,270
12-31-2021 Discount 86,384
Interest Revenue 86,384

Initial Carrying Value/Present Value of Note: Present Value factor * Note (or Cash Sales price)
PVF: Common basic calculation
Initial Unearned Interest Income/ IR/ Discount on NR: Notes – Initial CV given up (Fair Value – PV)
Gains: if Cash sales price > (Cost – AD) OR (CV received – CV given up) OR BV – CV.
Interest income: Previous CV * Prevailing rate (or Amortized cost or Interest rate)
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Subsequent UII/ Interest Receivable/ D: Previous UII – latest Interest Income
Subsequent CV: NR – latest (remaining) UII/IR/Discount or
Previous CV + (latest) amortized II/IR
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Interest Bearing: Gains: Sales Price (Note + Consideration) – Carrying Value (Equipment – Acc. Deptn)
Non-interest Bearing: Gains: Total Sales Price (Present Value of Notes + Cash Required) – CV
Discount: Fair Value – Present Value (i * NR) – Notes – CV
Carrying value of Note: Note – Remaining Discount or Previous CV + (Amortized cost/Interest rate)
Unamortized: Face Value – Carrying Value
Use Effective rate to get PV or amortized amount
Use Nominal rate to get interest balance
ER cannot be seen on note, Nominal rate is stated
Effective rate: Prevailing rate, market rate, yield rate
Nominal rate: Stated rate, coupon rate, face rate, contract rate

IB: Realistic Rate: Interest rate = Note * Interest. (Interest on interest)

NIB: Discount (NR – (NR w/ Interest F)) “Single payment”
Gains: Sales (Cash + PV) – Equipment
NIB: Installment: W/ cash and NR account yearly
Discount (NR – (NR w/ interest F)) “Periodic” Ordinary Annuity
Present Value: Previous PV * ER – Yield percentage
Yield Percentage includes interest and principal Interest PV * ER
Discount on Notes Receivable:
Principal
Interest (Whole amount interest) (Rate #1) XXX
Maturity XXX
Discount (XXX)
Net Proceeds XXX

Net Proceeds (Less: Discount) XXX

+ Carrying amount XXX
Profit/Loss of NR XXX