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Receivables: Accounts Receivable

The document discusses the classification and measurement of various types of receivables. Trade receivables expected to be collected within one year are classified as current assets, while longer-term receivables are noncurrent. Customer credit balances are classified as current liabilities. Accounts receivable are initially measured at face value and subsequently at amortized cost or net realizable value. Notes receivable represent claims supported by formal promises to pay from ordinary business transactions. They are initially measured at present value for long-term notes or face value for short-term notes.

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Kristalen Armando
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134 views2 pages

Receivables: Accounts Receivable

The document discusses the classification and measurement of various types of receivables. Trade receivables expected to be collected within one year are classified as current assets, while longer-term receivables are noncurrent. Customer credit balances are classified as current liabilities. Accounts receivable are initially measured at face value and subsequently at amortized cost or net realizable value. Notes receivable represent claims supported by formal promises to pay from ordinary business transactions. They are initially measured at present value for long-term notes or face value for short-term notes.

Uploaded by

Kristalen Armando
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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RECEIVABLES

Trade Receivable
 Expected to be realized in cash within normal operating cycle or one year whichever is
longer, are classified as current asset
Nontrade Receivable
 Expected to be realized in cash within one-year, CURRENT ASSETS
 If beyond one-year, NONCURRENT ASSETS
Customer’s Credit Balance
 Current Liability
 Not offset against debit balances in other customer’s account
Accounts Receivable
 Measurement
o Initially at Face Value or Original Invoice Amount
o Subsequently at Amortized Cost or Net realizable Value

Accounts Receivable
Beg Balance Collections
Credit Sales Sales Discounts
Sales Return and Allowances
Write off

END

 Recovery of Accounts
o Ignore in computing accounts receivable, unless included in collections in which case deduct
from collections
 Aging of Accounts Receivable
o Required Allowance
 Percentage of Accounts Receivable
o Required Allowance
 Percentage of Sales
o Doubtful Accounts Expense

Allowance for Doubtful Accounts


Write off Beg Balance
Recovery
Doubtful Accounts Expense

END
Classification in Income Statement

 IF the granting of credit and collection pf accounts are under the charge of the sales manager,
doubtful accounts shall be considered as Distribution cost
 If granting of credit and collection of accounts are under the charge of an officer other than sales
manager, doubtful accounts shall be considered as ADMIN EXPENSE
 In absence of any contrary statement, doubtful accounts shall be classified as ADMIN EXPENSE

Notes Receivables
RECEIVABLES
 Are claims supported by formal promises to pay usually in form of notes
 Represents only claims arising from sale of merch or services in the ordinary course of business
 Notes received from officers, employees, shareholders ad affiliates shall be designated separately

Measurement

 Initial – Present Value


o Short term notes receivable – Face Amount
o Long term notes receivable – depends on whether the notes are
 Interest-bearing – Face Amount
 Noninterest-bearing – Present Value
 Subsequent
o Long term notes receivable – Amortized Cost using the effective interest method
 Noninterest-bearing – Amortized Cost

Note: Cash flow relating to short term notes receivable are not discounted because the amount of the
discount is usually not material

Promissory Note

 Written contract
 May be payable on demand or at a definite future date

Dishonored notes

 When promissory note matures, and is not paid, it is said to be dishonored.


 It should be removed from the notes receivable account and transferred to Accounts Receivable at
an amount to include, if any, interest and other charges.

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