10. Accounts Receivable
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.
