RECEIVABLES

EDITH GEMA M.
DALIDA January 27, 2024

BS ACCOUNTANCY 4B PACR
QUESTIONS
1. Define Receivables
- Receivables are assets that represent contractual rights to receive cash or other
asset from another entity.
2. Explain the classification and presentation of receivables in the statement of financial

position.
- For non-financial institutions, receivables are classified into Trade receivables and
Non-trade receivables. Trade receivables arises from the sale of goods or services in
the ordinary course of business, this includes trade accounts receivables and trade
notes receivables which are classified as current assets. Non-trade receivables are
receivables arising from other sources and may be classified as either current or
noncurrent depending on the term. Trade and non-trade receivables that are
currently collectible are combined and presented on the statement of financial
position in a single line item described as “Trade and other receivables.”
3. Explain the treatment of customers’ credit balances

- Credit balances in customers’ accounts results from overpayments, advance
payments or errors. They are presented as current liabilities and not offset against
receivables.
4. Explain the initial and subsequent measurement of trade accounts receivable.

- Receivables are initially recognized at fair value plus transaction costs. However,
trade receivables that do not have a significant financing component are measured
at their transaction price or face amount in accordance with PFRS 15 Revenue from
Contracts with Customers. Transaction price is the amount of consideration to which
entity expects to be entitled in exchange for transferring promised goods or services
to a customer, excluding amounts collected on behalf of third parties. PFRS 15
allows the non-discounting of the amount of consideration if it is due within 1 year
from the date of transfer of the goods or services. In accordance with PFRS 9, after
initial recognition of accounts receivables, it shall be measured at amortized cost.
The amortized cost for accounts receivable is the net realizable value. The net
realizable value is the amount that is expected to be collected or the estimated
recoverable amount.
5. Explain the two methods of recording accounts receivable and credit sales.
- The two methods are Gross method and the Net method.
o Gross Method – The accounts receivables and sales are recorded at gross
amount of the invoice. This is the common and most widely used method
because it is simple.
o Net Method – The accounts receivables and sales are recorded at net
amount of the invoice. Meaning the invoice price minus cash discounts.
6. Explain the allowance method of accounting for bad debts.

- Allowance method requires recognition of bad debt loss if the accounts are doubtful
of collection. It is recorded as debit to Bad debt expense account and credit to
Allowance for doubtful accounts. Allowance for doubtful accounts is deducted from
accounts receivable to compute for the net realizable value.
7. Explain the direct writeoff method of accounting for bad debts.

- The direct writeoff method requires the recognition of bad debt loss only when
accounts are proved to be worthless. It is recorded as debit to Bad debt expense
account and credit to Accounts receivable. If the accounts are only doubtful of
collection. No adjustment is necessary. This method is not allowed under PFRS
since it violates the matching principle but it is used for income tax purposes.
8. Give the proforma entry under the allowance method for each of the following:
a. Doubtful accounts
Bad debt expense xxx
Allowance for doubtful accounts xxx
b. Accounts receivable proved to be worthless
Accounts receivable xxx
c. Recovery of accounts previously written off
Accounts Receivable xxx
Cash xxx
9. Give the proforma entry under the direct writeoff method for each of the following
a. Doubtful accounts
No entry
b. Accounts receivable proved to be worthless
c. Recovery of accounts previously written off
Cash xxx
10. Explain the presentation of doubtful accounts in the income statement.

If granting of credit and collection are under the charge of the sales manager, doubtful
accounts shall be considered as distribution cost. If granting of credit and collection are
under the charge of an officer other than the sales manager, doubtful accounts shall be
considered as administrative expenses.
PROBLEM 4-14
1. D
2. D
3. A
4. C
5. D
6. C
7. D
8. C
9. A
10. C
PROBLEM 4-15
1. A
2. A
3. A
4. D
5. B

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EDITH GEMA M.

DALIDA January 27, 2024

2. Explain the classification and presentation of receivables in the statement of financial

3. Explain the treatment of customers’ credit balances

4. Explain the initial and subsequent measurement of trade accounts receivable.

6. Explain the allowance method of accounting for bad debts.

7. Explain the direct writeoff method of accounting for bad debts.

10. Explain the presentation of doubtful accounts in the income statement.

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