These represent amounts collectible from customers and others, most frequently arising from sales of merchandise, claims for money lent, or the performance of service. They may be interest bearing, collateralized, or billed.
1. Accounts Receivable
2. Notes Receivable
1. Advances to Officers and Employees, Affiliates and Others 2. Claims against Suppliers and Insurance Companies
3. Those arising from non-recurring transactions (i.e., Subscriptions Receivable) and disposal of property 4. Accruals
A. General Rule
1. Face Value
1. Net Realizable Value (i.e., Face Value less Allowances for Doubtful Accounts*, Freight Charges, Sales Returns and Allowances and/ or Sales Discounts) 2. Discounted Amount or Present Value (i.e., long-term non-interest bearing note, and note carrying interest which is unreasonably low than the prevailing interest rate)
* Doubtful Accounts – are considered as administrative in nature, except if the selling manager has been granted the authority.
Methods of Estimating Doubtful Accounts:
1. Balance Sheet Approach – aging of accounts receivable, percentage of accounts receivable 2. Income Statement Approach – based on sales (gross or net, total or credit)
Methods of Accounting for Doubtful Accounts:
1. Allowance Method
2. Direct Write-Off Method
IV. FINANCIAL STATEMENT PRESENTATION
A. Current or Noncurrent -
1. Trade Receivables – within one year or normal operating cycle, whichever is longer (i.e., installment sales on household appliances and real estate where a major portion will be collected beyond normal operating cycle).
2. Non-Trade Receivables – within one year, notwithstanding the normal operating cycle.
B. Trade and Other Receivables – is a one-line item account used to summarize receivables that are classified as current assets. As to its details, they are disclosed in the notes to financial statements. Otherwise, they are presented separately as non-current items.
C. Advances to Subsidiaries and Affiliates – are usually classified as long-term investments.
D. Customers’ with Credit Balances – are usually classified as current liabilities. Otherwise, they are to be offset if the amounts are immaterial or of customers’ accounts.
E. Receivables from Officers, Directors, and Employees – are usually classified as current assets. Otherwise, they are presented as part of non-current assets.
F. Receivables Hypothecated against Borrowings * – are still included as part of the current assets with the corresponding disclosure in the notes to financial statements.
G. Receivables Assigned or Discounted with Recourse * – are excluded.
H. Receivables Sold without Recourse * – are excluded.
I. Unearned Finance Charges and Interests – are deducted from the related receivables.
J. Subscriptions Receivables – are presented as part of the stockholders’ equity. Otherwise, they are presented as part of the current assets.
* Forms of Receivable Financing:
1. Pledging – refers to the use of receivables as collateral for a loan. The only entry required in the books would record the loan obtained from the finance company or bank. The accounts receivable, in any manner, is not affected by the pledging. However, disclosures should be made in the notes to financial statements.
2. Assignment – is a more formal borrowing arrangement in which the receivables are used as security. The borrower (assignor) pledges the receivables to a lender (assignee) and signs a promissory note payable. Assignment may be done on a notification or non-notification basis.
3. Factoring – is a sale of receivables since the transfer of these receivables is...