Receivables

o Financial assets that represents a contractual right to

receive cash or another financial assets from another
entity
o Trade receivables or nontrade receivables
Trade Receivables
o Claims arising from sale of merchandise or services
o Accounts Receivable – open accounts arising from
the sale of goods and services. Also called
“customer’s accounts trade debtors” or “trade
accounts receivable”
o Notes Receivable – formal promises to pay in the
form of note
Receivables
o Financial assets that represents a contractual right to
receive cash or another financial assets from another
entity
o Trade receivables or nontrade receivables
Trade Receivables
o Claims arising from sale of merchandise or services
o Accounts Receivable – open accounts arising from
the sale of goods and services. Also called
“customer’s accounts trade debtors” or “trade
accounts receivable”
o Notes Receivable – formal promises to pay in the
form of note
Receivables
o Financial assets that represents a contractual right to
receive cash or another financial assets from another
entity
o Trade receivables or nontrade receivables
Trade Receivables
o Claims arising from sale of merchandise or services
o Accounts Receivable – open accounts arising from
the sale of goods and services. Also called
“customer’s accounts trade debtors” or “trade
accounts receivable”
o Notes Receivable – formal promises to pay in the
form of note
RECEIVABLES
-Financial assets that represent a contractual right to receive cash or another financial asset from
another entity
-Trade receivables or non-trade receivables

Trade Receivables
-receivables arising from the sale of goods and services in the ordinary course of business
-maybe evidenced by a promise to pay called Notes Receivable, or not evidenced by a promise to
pay, Accounts Receivable
-presented as current assets in the FS

Non-trade Receivables
-receivables arising from other sources
-presented as current assets when they are expected to be realized in cash within one year

Initial Measurement
-fair value plus transaction costs

Subsequent Measurement
-amortized cost

Presentation
-trade and current non-trade receivables are presented in one line item as Trade and Other
Receivables in the current asset section of the Statement of Financial Position

Accounts Receivable
-the initial measurement is transaction price/invoice price (this is the fair value of the financial
asset

Customer’s credit Balances

-credit balances in A/R
-results from overpayment, returns and allowances and advance payments from customers
-presented as current liabilities

Accounts receivable

Beginning balance Cash collections including recovery

Credit sales Sales discounts
Sales discount forfeited* Sales returns and allowances
Recovery of accounts written off Notes receivable as payment
Factored accounts
Write off
Ending Balance

Note: Sales discount forfeited is only present if the company is using the net method.

Deductions in estimating the net realizable value of trade accounts receivable:

-Allowance for freight charge
-Allowance for sales return
-Allowance for sales discount
-Allowance for doubtful accounts

Allowance for Doubtful Accounts

Write-off Beginning balance

Recovery
Balance before adjustment
Doubtful accounts expense
Ending balance

Accounting for Bad Debts

*direct write-off method
*allowance method
-Income Statement Method
*percent of credit sales method (the resulting amount is the doubtful accounts
expense)
-Balance Sheet Method
*percent of accounts receivable method
*aging method
-the computed amount under this method is the ending balance of the allowance
for doubtful accounts

The percentage of net credit sales method will provide the amount of doubtful accounts expense
for the year and therefore is a method that emphasizes proper matching of doubtful accounts
against sales. This amount will then be added to the balance before adjustment, the total of the
two will then be the amount of allowance at year-end or after adjustment.

The percentage of accounts receivable method will provide the amount of required allowance
for doubtful accounts and just like its counterpart the “Aging Method”, the amount of doubtful
accounts expense will be worked back as an adjustment to the amount of required allowance.
The Aging of accounts receivable method is arguably the most accurate of all three methods
since an analysis is made and each classification of accounts receivable is multiplied by a
specific rate of the estimate of uncollectability. Naturally older accounts receivable are more
likely to be uncollectible compared to newer or more recent sales.

Notes receivable
-evidenced by a written promise to pay
-may either be interest-bearing or non-interest-bearing

Initial Measurement
Short-term notes receivable
*interest bearing – face value
*non-interest bearing – face value, assuming discounting is immaterial otherwise
it is presented in present value
Long-term notes receivable
*interest bearing
- nominal rate = market rate of interest, face value
- nominal rate ≠ market rate of interest, present value
*non-interest bearing – present value

Subsequent Measurement
-Amortized cost

Loan receivable
-financial asset arising from a loan granted by a bank or other financial institution to a borrower
or client.

Initial Measurement
Face value
Add: Direct origination costs (directly attributable costs incurred by the lender to originate loan)
Less: Origination fees (fees charged by the bank against the borrower for the creation of loan)
Initial carrying amount

Subsequent Measurement
-amortized cost

*Initial carrying amount > face value, there is a premium and the nominal interest > effective
Interest
*Initial carrying amount < face value, there is a discount and the nominal Interest < effective
interest

Impairment of Loans
-impairment is the decrease in the carrying amount of a receivable due to objective evidence of
loss events
-the amount of impairment loss is recognized in profit or loss

Computation
Carrying amount of loan receivable (face value plus accrued interest if any)
Less: Present value of recoverable amount
Impairment loss

*the discount rate to be used in computing the PV of the recoverable amount is the original
effective rate