Intacc 1 ( Assets) Receivable Financing Study Notes PDF

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RECEIVABLE FINANCING Receivable’s Finance describes several different techniques a business can use to raise funds against the amounts owed to it by its customers in outstanding invoices, such as trade receivables or accounts receivables. Through receivable financing, a business can receive payments earlier, meaning it can invest in business growth and innovation.

Receivable Financing - the act of inducing cash inflows from receivables other than from their normal or scheduled payments. (inaagapan yung receivables ng business) Common forms: 1. Pledge - ginagamit yung receivables bilang collateral security sa loans. Secured borrowing siya because yung pledgor or borrower pa rin yung may hawak sa receivables. No specific receivable is pledged, basta receivable nila. No journal entry but only a note disclosure is needed for this type of rec fin. 2. Assignment - ginagamit din yung receivables bilang collateral pero for this one, the receivable used is identified. Meron certain receivable na ginagamit as collateral. Secured borrowing pa rin siya because the borrower retains control over it. The receivables assigned are reclassified– inaalis sa receivables na account at inililipat sa “Receivable - assigned” na account para makita na yun mismo ang ginamit na receivable bilang collateral. i. Equity in the assigned receivable: Carrying amount of the assigned receivable A (Carrying amount of the related loan payable) L Equity in the assigned receivable E b. Notification basis - alam ng mga debtors ng entity kung sila ba yung napili to be assigned – payments by debtors are made to the lender c. Non notification basis - hindi alam ng debtors kung sila ba yung pinili – payments by the debtors are made to the entity na nag assign or the assignor or the borrower LT ANUDAW (commonly used) 3. Factoring - binebenta mo yung receivables sa isang financial institution. Done usually on a notification basis (kasi nga binebenta mo na so dapat alam na nila kung san na nila babayaran yung need nila sana bayaran sayo) a. Without recourse - factor assumes the risk of uncollectibility, absorbs credit losses; entirely derecognized by the transferor b. With recourse - factor does not assume the risk of uncollectibility so the factor is still liable for the circumstances of the debtor not paying; the transferor guarantees payment; may continuing involvement pa rin yung transferor; kung ano lang ung control nila, yun lang isasama nila sa statements nila

c. Factor’s holdback - the transferor is responsible for any reduction in the collection of receivables due to sales discounts and returns. Factor’s holdback or receivable from factor yung account na tawag dito. Yung amount na yon ay ibinibigay sa transferor because of the possibility of the contra-sales accounts. If sumobra yung kinilala nila na amount, ibabalik din to ni factor kay transferor kapag nacollect na yung whole receivable or kaya kapag wala nang sales returns or discounts. d. Casual basis of financing - charges are recorded as “loss” EXAMPLE: an isolated event e. Regular means of financing - charges are recorded as regular expenses (ginagamit if the transferor regularly does factoring as a means of financing) EXAMPLE: commission expense or interest expense) i. Transferor’s cost of financing - charges stated above plus, in cases of debtor’s default, any amount that the transferor has guaranteed to pay to the factor 4. Securitization - a form of transfer of receivable. It is taking a pool of assets and sells shares in these pools of interest and principal payments = securities backed by pools of assets. a. Anong assets pwede? Those with a payment stream and a long-term payment history b. Unlike factoring, maraming investors na involved, the receivables are of higher quality, and the transferor usually continues to service the receivables. 5. Discounting of Notes Receivables - the holder endorses a note to a bank in exchange for the maturity value less a discount. At maturity date, the bank collects from the maker of the note. a. Without recourse - entity is not liable pag hindi nakapag pay yung maker ng note; derecognized na yung note because it is sold to the bank b. With recourse - the entity is liable in case the maker cannot pay; the note is not derecognized and the discounting can be accounted for as either: (1) Conditional sale of a contingent liability = face amount of the note, only disclosed sa notes or (2) Secured borrowing = liability at the face amount of the note, recognized c. FORMULAS USED IN DISCOUNTING Net Proceeds

NP = Maturity Value - Discount

Maturity Value

MV = Principal + Interest for the full term of note

Discount

DC = MV x Discount period x Discount rate Discount period ay yung remaining period pa to the maturity date of the note as of the date of discounting Discount rate = rate at which the note is discounted

Interest Income

Prt with time as the accrued days or the time passed na

6. Discounting of Own Notes - the entity borrows from the bank and discounts yung sarili nilang note. Sa 5th form, ibang note yung niddiscount nila. For this one, kanilang sariling note. It is accounted for as a regular loan transaction. Discounting = happens because binabawas na ng bank yung interest sa loan. a. Loan Proceeds = Principal - Interest Deducted in Advance b. Dc on Note Payable is a contra-liability account to the note payable. Binabawas siya, ibig-sabihin....