RECEIVABLES

Trade Receivable
 Expected to be realized in cash within normal operating cycle or one year whichever is
longer, are classified as current asset
Nontrade Receivable
 Expected to be realized in cash within one-year, CURRENT ASSETS
 If beyond one-year, NONCURRENT ASSETS
Customer’s Credit Balance
 Current Liability
 Not offset against debit balances in other customer’s account
Accounts Receivable
 Measurement
o Initially at Face Value or Original Invoice Amount
o Subsequently at Amortized Cost or Net realizable Value

Accounts Receivable
Beg Balance Collections
Credit Sales Sales Discounts
Sales Return and Allowances
Write off

END

 Recovery of Accounts
o Ignore in computing accounts receivable, unless included in collections in which case deduct
from collections
 Aging of Accounts Receivable
o Required Allowance
 Percentage of Accounts Receivable
o Required Allowance
 Percentage of Sales
o Doubtful Accounts Expense

Allowance for Doubtful Accounts

Write off Beg Balance
Recovery
Doubtful Accounts Expense

END
Classification in Income Statement

 IF the granting of credit and collection pf accounts are under the charge of the sales manager,
doubtful accounts shall be considered as Distribution cost
 If granting of credit and collection of accounts are under the charge of an officer other than sales
manager, doubtful accounts shall be considered as ADMIN EXPENSE
 In absence of any contrary statement, doubtful accounts shall be classified as ADMIN EXPENSE

Notes Receivables
 RECEIVABLES
 Are claims supported by formal promises to pay usually in form of notes
 Represents only claims arising from sale of merch or services in the ordinary course of business
 Notes received from officers, employees, shareholders ad affiliates shall be designated separately

Measurement

 Initial – Present Value

o Short term notes receivable – Face Amount
o Long term notes receivable – depends on whether the notes are
 Interest-bearing – Face Amount
 Noninterest-bearing – Present Value
 Subsequent
o Long term notes receivable – Amortized Cost using the effective interest method
 Noninterest-bearing – Amortized Cost

Note: Cash flow relating to short term notes receivable are not discounted because the amount of the
discount is usually not material

Promissory Note

 Written contract
 May be payable on demand or at a definite future date

Dishonored notes

 When promissory note matures, and is not paid, it is said to be dishonored.

 It should be removed from the notes receivable account and transferred to Accounts Receivable at
an amount to include, if any, interest and other charges.