3. Accounts Receivable Summary Reviewer PDF

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Theory of Accounts Practical Accounting 13 BLUE NOTESUSLCHAPTERnullReceivables are financial assets that represent a contractual right to receive cash or another financial asset from another entity.Trade Receivables – these are claims arising from the sale of merchandise or services in the ordinary ...

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3 are financial assets that represent a another entity.

U S L

BLUE NOTES

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t to receive cash or another financial asset from

– these are claims arising from the sale of merchandise or services in the ordinary course of business. These claims are classified as current assets because they are

– represent claims arising from sources other than the sale of merchandise or services in the ordinary course of business. These claims are classified as current assets when they are

It includes: 1. Account receivables – are open accounts or those not supported by promissory notes. 2. Notes receivables – those supported by formal promises to pay in the form of notes.

Otherwise, they are classified as noncurrent assets. Examples: 1. – classified as either current or noncurrent assets depending on the period of its collectability. 2. – usually treated as noncurrent assets. 3. – current asset 4. – current assets if collectible within one year. Otherwise, they are shown as a deduction from subscribed share capital. 5. Creditors’ accounts w – results from overpayment or returns and allowances. Classified as current assets. If the debit balances are not material, an offset against the creditors’ accounts with credit balances may be made and only the net accounts payable may be presented. 6. – classified as either current or noncurrent assets depending on the period of its collectability. 7. (dividends receivable, accrued rent income, accrued royalties income and accrued interest on bond investment) – current assets. 8. (claims against common carriers for losses or damages, claim for rebates and tax refunds, claims from insurance companies) – current assets

Theory of Accounts Practical Accounting 1

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USL Blue Notes

Chapter 3 – Accounts Receivable

s , paragraph 5.1.1, states that a . Long-term Receivables Short-term Receivables Fair value equivalent

Face value or original invoice amount

Interest-bearing

Noninterest-bearing

Face value

Present value of all future cash flows discounted using the prevailing market rate of interest for similar receivables.

Trade and nontrade receivables that are currently collectible shall be presented on the face of the statement of financial position as one line item called trade and other receivables. However, the details of the total trade and other receivables shall be disclosed in the notes to financial statements. Note: Customers’ credit balances are classified as current liabilities. If the debit balances are not material, an offset against the customers’ accounts with credit balances may be made and only the net accounts receivable may be presented.

re open accounts or those not supported by promissory notes arising from sale of merchandise or services in the ordinary course of business.

 at face value or original invoice amount  at net realizable value (NRV) which means the amount of cash expected to be collected or the estimated recoverable amount  In estimating the NRV of trade accounts receivable, deductions for the following are made: 1. Allowance for freight charge – occurs when the goods are sold FOB destination but shipped freight collect with the understanding that the freight will be paid by the buyer and will be deducted from the receivable of the seller. The seller records this by debiting freight out and crediting allowance for freight charge. FOB destination – ownership of the goods sold is vested in the seller until it reaches the buyer. Thus, the seller shall be responsible for freight charge. FOB shipping point – ownership of the goods sold is vested in the buyer upon shipment. Thus, the buyer shall be responsible for freight charge. Freight collect – freight charge is not yet paid and will be collected from the buyer. Freight prepaid – freight charge is already paid by the seller. 2. – recognizes the probability that some customers will return goods that are unsatisfactory or will claim a reduction of the amount due in case of shipment shortages and defects. 3. – these are estimates of cash discounts granted to customers for their prompt payment at the end of the period based on past experience. 4. – estimates of uncollectible accounts. It recognizes the risk that some customers will not pay their accounts. Practical Accounting 1 Theory of Accounts

Chapter 3 – Accounts Receivable

USL Blue Notes

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 Accounts Receivable Less: Allowance for Doubtful Accounts Allowance for Sales Discounts Allowance for Sales Returns Allowance for Freight Charge Net Realizable Value 1. Gross method - the accounts receivable and sales are recorded at gross amount of the invoice. 2. Net method - the accounts receivable and sales are recorded at net amount of the invoice (invoice price minus the cash discount) Note: Under the Net Method,

.

 .  Doubtful accounts expense is recognized if the account is doubtful of collection, as contrast to the direct write-off method that recognizes bad debt expense if the account is worthless or uncollectible. 1. Aging of accounts receivable (“Statement of financial position approach”) 2. Percent of accounts receivable (“Statement of financial position approach”) 3. Percent of sales (“Income statement approach”) Note: Aging of Accounts Receiveble and Percent of Accounts Receivable presents the accounts receivable at net realizable value. Under these two methods, the computed amount is already the ending balance of allowance for doubtful accounts. Under the Percent of Sales Method, the computed amount is the bad debt expense for the period.

Theory of Accounts Practical Accounting 1...