CURRENT ACCOUNTS RECEIVABLES
•Trade Receivables
Accounts Receivable
Notes Receivable
Installment Receivable
• Other Receivables
(non-trade receivables)
Accrued interest receivable
Accrued interest income
Rent Receivable
Dividends Receivable – Assigned and Unassigned
Advances to Employees
Advances to Officers
Subscription Receivable (collectible within one year)
o (if collectible beyond one year - deduction from Subscribed Share Capital)
Claims receivable
Due from Suppliers
Creditor's debit balance (Accounts Payable debit balances)
Claims against common carries
Advances to Suppliers
Trade Installment Receivables
+ Postdated Check from Customer
+ NSF Check from Customer
NON-CURRENT ACCOUNT RECEIVABLES (Generally. Subject to change if due is near)
• Other Receivables
Advances to Affiliates
Advances to Subsidiaries
Claims for tax refunds
Subscription Receivable
Security Deposits
Deposit Contract
Deposits to guarantee performance or payment to cover possible damages or losses
less: Overpayment of collection
Merchandise return + Credit balance of Customer
Accounts Receivable XXX
Less: Allowance for Doubtful Accounts (XXX)
Net of Realizable Value XXX
*Amortized cost of AR is same as the net realizable value (Allowances Deducted)
Amount of ADA: GR: Amount Stipulated. E: % of amount uncollectible
COGS XXX
+ Gross Margin on Sales/ Mark-up on Cost XXX
Gross sales XXX
(Cash sales) (XXX)
Credit sales XXX
+ AR beg XXX
Total XXX
(AR collected) (XXX)
AR end XXX
Doubtful accounts expense for the current using
(aging method is in used) Compute aging:
Required allowance
+ debit balance in Allowance
Doubtful account Expense
ADA for the year end:
ADA beg XXX
+ DA Expense XXX
Total XXX
Accounts written off (XXX)
ADA end XXX
Allowances:
Sales Return
Sales Discount
Freight Charge
Written off
Allowances to customers for shipping damages
Allowances for uncollectible accounts
Measurements:
AR: Initial/ Short term: Face Value or Invoice
Subsequent/ Long term: Amortized Cost or NRV
Trade Receivables: Initially @ Transaction Price
Cash Discounts: 3 method –
o Gross price: Both AR and Sales initially recorded at gross w/o recognition of available cash
discount until actually taken.
o Net: Both AR and Sales recorded at sales price less AR discount (Net) @ amortized cost.
o Allowances: AR recorded @ gross sales price, Sales recorded at net amount and available cash
discount recorded as credit in the valuation account, ASD.
Freight: FOB SP, C; FOB D,C; FOB SP,P; FOB D,P
Bad Debts: 2 methods –
o Allowance: Silent
o Direct write-off: No allowance account
Bad Debts: 2 approaches –
Approach What is used(Basis) What is Solved What amount is used
Balance Sheet AR Allowance for BD (or Age) Difference of Computed*
Income Statement Sales BD Expense Computed amount
* Difference between the computed amount and the Allowance for BD established
ACCOUNTS RECEIVABLE NOTES:
The selling price of goods on consignment is excluded from AR because the goods are still unsold
The cost of the consigned goods should be included in inventory
Collection of Accounts Written off: Effect is off setting
Bad Debt Recovery is income asset
The security deposit is noncurrent AR
SD forfeited – other operating income in Profit/Loss @ SCI
Jan 1 balance after deducting credit balance of X – add back
Eg. 1 Cash received from credit customers, all of whom took advantage of the discount feature of the credit
terms 4/10, n/30. 3,024,000
Gross account: 100%
Cash discount: 4%
Net amount: 96%
3,024,000 ÷ 96%= 3,150,000
Sales discount 3,150,000 x 4% = 126,000
Cash received from credit customers = 3,024,000
Eg. 2 The entity established an ADA estimated at 5% of credit sales.
Written off: 50,000
Sales on account
Provision fro doubtful accounts (8.4m x 5%) 420,000
Accounts written off (50,000)
Ada end 370,000
NOTES RECEIVABLES
Recording it not in face value because of time value of money
TVM – value of money if it will be recorded today
Interest rate should not exceed discount
Discount is contra-asset account
If no Effective rate given: Prorate the unearned
Amortized Cost = Carrying value
Interest Bearing – Interest stated at face. The fair Value is its Face Value
Non-interest Bearing (Zero interest Bearing) – Interest not stated at face
GR: When exchanged for property/services, transaction is recorded @ Fair value of goods
o E: Fair Value of notes is more determinable
o E-E: Neither FV is determinable, imputed rate is used to determine note’s PV
When interest rate is unrealistic, it means Nominal rate is higher or lower then the Effective rate
Installment – Low:
Discount (NR – (Notes Rec. – (Yield percentage * Nominal rate) w/ Single)
CASH payment yearly w/ Interest
Installment – High:
Gain: Present Value – Carrying Value
Difference between face value of NR and its present value:
Discount on NR: Excess of FV of note over its PV is credited to NR > VC/PV
Premium on NR: Excess of PV of note over its FV is charged to
Unamortized discount is deducted from the ledger balance of NR
Unamortized premium is added to the balance of NR
NR Discount/UII/IR CV
Date *Transaction date* Eg. 4M / 4M
*First payment* Usually Dec. 31 Eg. 4M / 3M
If no annual installment/payment: Amount in NR is constant
If there is: Amount in NR decreases (As NR being paid)
Interest bearing: Interest per annum
If silent, the problem is compound. Which means the principle used for computation of interest increases as
payment increases annually (or semi-annually)
Note 4,000,000, 10% per annum.
Initial entry: NR 4,000,000
1-1-2020 Cash 4,000,000
12-31-2020 Interest Rec. 400,000 (4M * .10)
Interest income 400,000
12-31-2021 IR 440,000 ((4M + 400,000) * .10)
II 440,000
12-31-2023 IR 532,400 ((4M + 400K + 440K + 484) * .10)
II 532,400
Cash 5,856,400
NR 4,000 ,000 (NR from start)
IR 1,856,400 (Interest sum)
WHAT IF: Yearly installment 1M
Initial entry: Same
12-31-2020 Cash 1,400,000
NR 1,000,000
II 400,000
12-31-2021 Cash 1,300,000
NR 1,000,000
II 300,000
Non-interest Bearing - Single Payment: If no Effective rate given: Prorate the unearned
Eg. 1) 1-1-2020 Note 2,000,000, prevailing rate 5%. Due 12-31-2023
NR UII/ IR/ Discount CV
1-1-2020 2M 354,595 1,645,405
12-31-2020 2M 272,325 1,727,675
12-31-2021 2M 185,941 1,814,059
12-31-2020 Discount 82,270
Interest Revenue 82,270
12-31-2021 Discount 86,384
Interest Revenue 86,384
Initial Carrying Value/Present Value of Note: Present Value factor * Note (or Cash Sales price)
PVF: Common basic calculation
Initial Unearned Interest Income/ IR/ Discount on NR: Notes – Initial CV given up (Fair Value – PV)
Gains: if Cash sales price > (Cost – AD) OR (CV received – CV given up) OR BV – CV.
Interest income: Previous CV * Prevailing rate (or Amortized cost or Interest rate)
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Subsequent UII/ Interest Receivable/ D: Previous UII – latest Interest Income
Subsequent CV: NR – latest (remaining) UII/IR/Discount or
Previous CV + (latest) amortized II/IR
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Interest Bearing: Gains: Sales Price (Note + Consideration) – Carrying Value (Equipment – Acc. Deptn)
Non-interest Bearing: Gains: Total Sales Price (Present Value of Notes + Cash Required) – CV
Discount: Fair Value – Present Value (i * NR) – Notes – CV
Carrying value of Note: Note – Remaining Discount or Previous CV + (Amortized cost/Interest rate)
Unamortized: Face Value – Carrying Value
Use Effective rate to get PV or amortized amount
Use Nominal rate to get interest balance
ER cannot be seen on note, Nominal rate is stated
Effective rate: Prevailing rate, market rate, yield rate
Nominal rate: Stated rate, coupon rate, face rate, contract rate
IB: Realistic Rate: Interest rate = Note * Interest. (Interest on interest)
NIB: Discount (NR – (NR w/ Interest F)) “Single payment”
Gains: Sales (Cash + PV) – Equipment
NIB: Installment: W/ cash and NR account yearly
Discount (NR – (NR w/ interest F)) “Periodic” Ordinary Annuity
Present Value: Previous PV * ER – Yield percentage
Yield Percentage includes interest and principal Interest PV * ER
Discount on Notes Receivable:
Principal
Interest (Whole amount interest) (Rate #1) XXX
Maturity XXX
Discount (XXX)
Net Proceeds XXX
Net Proceeds (Less: Discount) XXX
+ Carrying amount XXX
Profit/Loss of NR XXX
