10. Accounts Receivable

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PFRS 9, paragraph 5.1.1

Financial asset shall be recognized initially at fair value plus transaction costs that are directly attributable to the acquisition.

Receivables

Financial assets that represent a contractual right to receive cash or another financial asset from another entity

Trade receivables

Refer to claims arising from sale of merchandise or services in the ordinary course of business. It includes accounts receivables and notes receivables

Non-trade receivables

Represent claims arising from sources other than the sale of merchandise or services in the ordinary course of business

Gross method

accounts receivables and sales are recorded at gross amount of the invoice

Net method

accounts receivables and sales are recorded at net amount of the invoice, meaning invoice price - cash discount

FOB destination

the seller shall be responsible for the freight charges up to the point of destination

Trade receivables Non-trade receivables

Classification of receivables

PAS 1, paragraph 66

An entity shall classify an asset as current when the entity expects to realize the asset or intends to sell or consume it on the entity's normal operating cycle, or when the entity expects to realize the asset within twelve months after the reporting period.

Accounts receivable

Are open accounts arising from sale of goods and services in the ordinary course business and not supported by promissory notes

Current liabilities

Credit balances are classified as ______________________

Customers' credit balances

Credit balances in accounts receivables resulting from over-payments, returns and allowances and advances from customers

Advances Subscriptions receivable Debit balance of a Creditor's account Special deposits on contract bids Accrued income Claims receivable

Examples of Non-trade Receivables

Freight prepaid

Freight charge on the goods shipped is already paid by the seller

Freight collect

Freight charge on the goods shipped is not yet paid. Freight charge are usually paid by the buyer

Non-current assets

If collectible beyond one year, non-trade receivables are classified as _______________________

Amortized cost

Increase due on interest; payment + interest

FOB shipping point

Incumbent upon the buyer to pay for the transportation charge from point of shipment to the point of destination

Face value or original invoice amount

Initial measurement of accounts receivable

Face value

Long-term receivables that are interest bearing, are measured at fair value which is equal to the ______________

Present value

Long-term receivables that are non-interest bearing, are measured at fair value which is equal to the ______________

Allowance method Direct write-off method

Methods for accounting bad debt loss

Gross method Net method

Methods of recording credit sales

Current assets

Non-trade receivables which are expected to be realized in cash within one year, the length of the operating cycle notwithstanding, are classified as ____________________

Notes receivable

Receivables that are supported by formal promises to pay in the form of notes

Face value or original invoice amount

Short-term receivables are measured at fair value which is equal to the ________________________

Net realizable value

Subsequent measurement of accounts receivable

Net realizable value

The amount of cash expected to be collected or the estimated recoverable amount

Bad debt loss

This loss is simply one of the costs of doing business on credit

Current assets

Trade receivables which are expected to be realized in cash within the normal operating cycle or one year, whichever is longer, are classified as ____________________

FOB destination

ownership of the goods purchased is vested in the buyer upon receipt thereof.

FOB shipping point

ownership of the goods purchased is vested in the buyer upon shipment thereof.


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