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Acc 103 - Day 24 - TG
Acc 103 - Day 24 - TG
A. LESSON PREVIEW/REVIEW
Introduction
Let’s have your 24th day in Conceptual Framework & Accounting Standards by learning new things
about accounts receivables. Things get better every single day as long as you are trying. Answer the
pre-test below to gauge your understanding. You can do it!
_________1. All claims held against customers and others for money, goods, or services are reported
as current assets. -
_________2. Trade receivables include notes receivable and advances to officers and employees.
_________3. Trade discounts are used to avoid frequent changes in catalogs and to alter prices for
different quantities purchased.
_________4. In the gross method, sales discounts are reported as a deduction from sales.
_________5. The net amount reported for short-term receivables is not affected when a specific
account receivable is determined to be uncollectible.
B. MAIN LESSON
Lesson Content
Make sure to highlight or underline the important parts!
Receivables
Receivables are assets that represent contractual rights to receive cash or other asset from
another entity.
Common examples:
Accounts Receivables supported by oral or informal promises to pay; not
receivable supported by promissory notes
Notes receivable Receivables supported by written or formal promises to pay in the
form of promissory notes or post-dated checks
Loans receivable Receivables arising from loans extended by financial institutions,
such as banks, financing companies, and lending institutions;
supported by promissory notes and are generally backed collateral
securities or post-dated checks
Advances Receivables arising from advances to officers and employees,
advances to suppliers, and advances to affiliates
Accrued income Receivables arising from income earned but not yet collected, such
as interest income, dividend income, and the like
Deposits Receivables from reimbursable deposits paid to cover potential
damages or losses, deposits for guarantee of performance or
payment, and deposits for returnable items
Claims receivable Receivables from insurance companies for casualties sustained,
defendants under suit, government agencies for refundable taxes
and other remittances, common carriers for damaged or lost goods,
and suppliers for returned or damaged goods
Non-trade Receivables
Receivables arising from other sources
Classified as current assets only when they are expected to be realized in cash within
one year
The normal operating cycle of an entity is the time between the acquisition of assets for
processing and their realization in cash or cash equivalents.
Financial statement Trade and non-trade receivables that are currently collectible are
presentation combined and presented on the statement of financial position in a
single line item described “Trade and other receivables”
Initial measurement Fair value plus transaction cost;
1. Under FOB shipping point, ownership is transferred to the buyer upon shipment.
Therefore, sales and accounts receivable are recognized on shipment date.
2. Under FOB destination, ownership is transferred only upon receipt of the goods by the
buyer. Therefore, sales and accounts receivable are recognized only when the buyer receives
delivery of the goods.
As a rule, the entity who owns the goods being shipped should pay for the
shipping cost.
Special accounting arises on the following terms
FOB shipping point, freight prepaid The buyer owns the goods being shipped
but the seller already paid the shipping cost.
FOP destination, freight collect The seller owns the goods being shipped
but the carrier will be collecting the shipping
costs from the buyer.
Skill-building Activities
Let’s try to practice what you have learned! Check your answers against the Key to Corrections found
at the end of this SAS. Write your score on the space provided.
3. What is the preferable presentation of accounts receivable from officers, employees, or affiliated
companies on a balance sheet?
a. As offsets to capital.
b. By means of footnotes only.
c. As assets but separately from other receivables.
d. As trade notes and accounts receivable if they otherwise qualify as current assets.
4. When a customer purchases merchandise inventory from a business organization, she may be
given a discount which is designed to induce prompt payment. Such a discount is
called a(n)
a. trade discount.
b. nominal discount.
c. enhancement discount.
d. cash discount.
To better test your knowledge on the topic, encircle the best answer below without looking in your
content notes. Be honest at all times. Your teacher will provide you the key answer in this activity.
Multiple Choice:
1. If a company employs the gross method of recording accounts receivable from customers,
4. Of the approaches to record cash discounts related to accounts receivable, which is more
theoretically correct?
a. Net approach.
b. Gross approach.
c. Allowance approach.
d. All three approaches are theoretically correct.
5. All of the following are problems associated with the valuation of accounts receivable
except for
a. uncollectible accounts.
b. returns.
c. cash discounts under the net method.
d. allowances granted.
6. AG Inc. made a 10,000 sale on account with the following terms: 1/15, n/30. If the
company uses the net method to record sales made on credit, how much should be
recorded as revenue?
a. 9,800.
b. 9,900.
c. 10,000.
d. 10,100.
7. AG Inc. made a 10,000 sale on account with the following terms: 1/15, n/30. If the
company uses the gross method to record sales made on credit, what is/are the debit(s) in
the journal entry to record the sale?
a. Debit Accounts Receivable for 9,900.
b. Debit Accounts Receivable for 9,900 and Sales Discounts for $100.
c. Debit Accounts Receivable for 10,000.
d. Debit Accounts Receivable for 10,000 and Sales Discounts for $100.
8. AG Inc. made a 10,000 sale on account with the following terms: 2/10, n/30. If the
company uses the net method to record sales made on credit, what is/are the debit(s) in
the journal entry to record the sale?
a. Debit Accounts Receivable for 9,800.
b. Debit Accounts Receivable for 9,800 and Sales Discounts for 200.
c. Debit Accounts Receivable for 10,000.
d. Debit Accounts Receivable for 10,000 and Sales Discounts for 200.
C. LESSON WRAP-UP
FAQs
Is it possible for an Accounts receivable to have a credit balance? If so, how is it being accounted?
- Customers’ accounts (accounts receivable) may at times have credit balance resulting from
overpayments, advance payments or errors. Credit balances in customers’ accounts are
presented as current liabilities and not offset against receivables.
Work Tracker
You are done with this session! Let’s track your progress. Shade the session number you just
completed.
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KEY TO CORRECTIONS
Introduction/Review/Pre-test
1. D 2. D 3. C 4. D 5. D
No. 1- Trade receivables refer to claims arising from sale of merchandise or services in the ordinary
course of business operations. The usual types are accounts receivable and notes receivable.
No. 2- The following accounts in the given choices are not claims arising from the ordinary course of
business operations.
No. 4- A cash discount is a reduction in the amount of an invoice that the seller allows the buyer. This
discount is given in exchange for the buyer paying the invoice earlier than its normal payment date.
Activity 6: Check for Understanding. The teacher will provide the key answers in this activity.
1. A 2. D 3. C 4. A 5. C
6. B 7. C 8. A
No. 6- The allowance method is preferred over the direct write-off method because the income
statement will report the bad debts expense closer to the time of the sale or service, and the balance
sheet will report a more realistic net amount of accounts receivable that will actually be turning to cash.