CHAPTER 4: ACCOUNTS RECEIVABLE

CLASSIFICATION AS TO SOURCE
APPLICABLE ACCOUNTING STANDARDS 1. TRADE RECEIVABLES- claims arising from sale of
 Philippine Financial Reporting Standards (PFRS) 9 - merchandise or services in the ordinary course of
Financial Instruments business operation. (related sa normal operating ng
 PFRS 15 (Revenue from Contract with Customers) business mo. For example: ikaw ay may parlor, di ka
 PAS 32- Financia Instruments Presentation and agad binayaran ng customer mo. May collectible ka
Disclosure sa kanila and that would be classified as trade
receivables. Kasi nagrender ka ng service sa kanila.
RECEIVABLES Di pa sila nagbayad, at sabi magbabayad sila the
 In Layman’s term: mga pautang mo. following day or sa susunod na panahon. Yung
 A financial asset that represents a contractual service na nirender mo is related to operation ng
right to receive cash or another financial asset business.)
from another entity. (DEFINITION BY
ACCOUNTING STANDARDS). (kapag nagbenta ka a. Accounts receivable (other terms for a/r:
ng services or goods, ang kapalit non ay pera. customer’s accounts or trade debtors or trade
May contractual right ka na makareceive ng accounts receivable)- open account; not
cash). supported by a promissory note.
b. Notes receivable- is a formal claim against
It represents the amount collectible from another that is evidenced by a written promise
customers and others, most frequently arising called “Promissory note” or a written order to
from sale of merchandise, claims for money lent, pay at a later time called “Time draft.” (tuwing
or the performance of services. (Arising from sale kelan maccollect? If there is a written promise
of merchandise- kapag nagbenta ka on account, to pay).
may contractual right ka na makareceive ng cash.
Claims for money lent- kapag nagpautang ka Negotiable promissory note is an unconditional
particularly loans receivable. Performance of written agreement to pay a certain sum of
services- magpperform ng services and babayaran money on a specific or determinable date to
on account). order of the payee or to bearer. (unconditional
 Under PFRS 15 par. 108, a receivable is an written agreement- pag may word na
entity’s right to consideration that is unconditional, ang requirement ay there is a
UNCONDITIONAL. passage of time. Specific or determinable date-
naka specify sa promissory note kung kelan mo
A right to consideration is unconditional if only the issettle. Order to payee or bearer- ikaw na
passage of time is required before payment of business, ang magbabayad sa iyo ay customer
that consideration is due. (right to consideration- mo).
yung babayaran sa iyo is unconditional. Tuwing
kailan? May paglipas ng panahon at requirement IMPORTANT NOTE!
yon before ka bayaran. Kapag hindi ka binayaran ONLY negotiable promissory note is included as
ni customer ngayon at sinabi na bukas na lang, part of notes receivable. Dishonored notes
there is a passage of time. Consideration- kailan receivable do not qualify as notes receivable in
ka babayaran sa services na ginawa mo or sa the Statement of Financial Position as well as
goods na binenta mo). overdue notes. They are classified as Accounts
Receivable together with accrued interest.
CLASSIFICATION OF RECEIVABLES (overdue notes- february 1 na, lumagpas na ng
feb 1 and hindi pa nassettle, wag daw isasama
under notes receivable na pinepresent mo sa
SFP. Pero pano raw ang presentation? They are
classified as Accounts Receivable together with
accrued interest.)

2. NON-TRADE RECEIVABLES- claims that arises from

sources other than from the sale of goods or
services in the normal course of business. (hindi
 siya nangyayari in the normal operating cycle ng ka talga, hindi basata sinabi mo lang. pero syempre
business. Kumbaga hindi siya daily part ng babalik din yan sa iyo.
operation. For example: nagpautang si business sa 10. debit balace of creditors account- meaning
mga officers niya or advances sa mga employees.) nagkaron ng debit balance ang iyong accounts payable.
Meaning napasobra ka ng bayad. As a general rule,
EXAMPLES OF NONTRADE RECEIVABLES AND ITS hindi mo yan pwedeng i-netted sa accounts payable.
CLASSIFICATION Kailangan I-identify mo siya as non trade receivable. If
material, current asset ang classification. If immaterial
ito, minsan ginagawa na lang ding loss.

CLASSIFICATION AS TO SFP
1. CURRENT
a. TRADE RECEIVABLES- generally classified as
current because of the concept of normal
operating cycle notwithstanding the period from
the reporting date. (kahit lumagpas sa isang
taon, basta within the normal operating cycle pa
rin, current pa rin ang classification. Kasi nga
trade, related sa business operation mo. Normal
operating cycle- from the moment na bumili ka
ng raw materials, up to the moment ng finished
goods, nabenta mo, upto the moment na
naiconvert mo siya into cash. It can be shorter, it
can be longer.)
b. NONTRADE RECEIVABLES- classified as current
only if they are reasonably expected to be
2. Advances to affiliates- mga affiliated company. Mga
realized in cash within 12 months after the
sister company mo. Normally pag may mga advances na
reporting date. (macclassify mo lang siya as
ganyan, minsan may interest, minsan wala. Normally,
current if expected to be realized (makolekta
pag may advances to affiliates, long term investment to.
mo) within 12mos after the reporting date).
3. Advances to supplier for acquisition of merchandise-
ikaw, nag advance ka kay supplier ng bayad mo. Bakit
INITIAL RECOGNITION OF RECEIVABLES
hindi siya classified under trade receivables? Kasi ang
Receivables are recognized simultaneously with the
ine expect mong mareceive dito is hindi pera, ang ine
recognition of revenue under PFRS 15. (inirerecognize
expect mong mareceive rito ay goods.
mo yung receivables simultaneously or parallel.
5. for example, may mga deposit tayo na tinatawag para
Kasabayan ng pagrrecognize mo ng revenue. Kelan ka
ma assure natin na ipperform talaga yung services or
nagrrecognize ng revenue? Kapag nakapagtransfer na
iddeliver yung goods. Nagdedeposit muna. Pero pag
ng goods and services at meron kang ineexpect na
naperform na yung services or nadeliver na yung goods,
amount na mareceive from that transfer).
maibabalik mo. Kaya nga deposit to guarantee
performance- para lang may assurance ka na gagawin
The entity shall recognize revenue to depict the transfer
talaga.
of promised goods/services to customers in an amount
7. hindi ito ina identify as trade receivable kasi hindi
that reflects the consideration to which the entity
naman normal na nagyayari na may gantong ganap.
expects to be entitled in exchange for those goods or
Bihirang bihira lang. lalo na kung ito ay naka FOB
services (PFRS 15.2). (nagrrecognize ka ng revenue
destination.
kapag nakapag render ka na ng service or nadeliver mo
8. minsan pag napasobra yung bayad mo ng income tax
na yung goods. In an amount that reflects the
or any tax. Pwede ka mag file ng refund. Malamang yan
consideration- kung anong napagkasunduan, kung
ay magiging receivable mo from the government. Kaya
magkano yung transaction, yun yung babayaran. To
non trade ang classification.
summarize, kapag nakapagtransfer ka na ng goods or
9. kung sa nagpapareserve, meron munang pa down.
service. Tapos nag iintay ka na lang na mabayaran
Kung ikaw makikipag bidding pano magguarantee na
doon sa amount na napag agreehan, that is the time
ikaw talaga ay magbbid. So minsan nirrequrie talaga na
that you will recognize revenue.)
may special deposit para may assurance rin na magbibid
INITIAL MEASUREMENT OF RECEIVABLES SHORT TERM RECEIVABLES AND NET REALIZABLE
VALUE
Receivables
Topic Outline
 Initial and Subsequent measurement of short-
term receivables (short term receivables are
receivables that are collected within one year or
less or net operating cycle).
 Net Realizable Value (NRV) determination

INITIAL AND SUBSEQUENT MEASUREMENT

1. INITIAL
Short-term receivables with NO STATED INTEREST
*Transaction cost- these are costs that are directly RATES can be measured initially at transaction price (EX.
associated with the assets. INVOICE PRICE) when the effect of discounting is
*Under PFRS 15- hindi kasama yung mga output VAT or IMMATERIAL. (trade discount- minaminus na sa list
output tax. Yung estimates of variable consideration price para madetermine na yung invoice price. Invoice
means for example: bukod sa pagbabayad ng upa, price- magkano talaga ang bentahan).
meron ka ring porsyento sa sales nung nagababyad ng
upa. Umuupa siya sa iyo, nagpaparent ka tapos may 2. SUBSEQUENT
business siya. Yung business niya is kumikita ng Net Realizable Value (NRV) – the recoverable amount.
malakas. Sabi mo, may porsyento ka pa rin don dapat. (net means may ibinawas ka sa original/initial amount
Kunyari 5% of sales. So hindi raw yon kasali kasi ibang of receivable.)
usapan yon. Kumbaga ibang form of revenue yon. Yung
3rd parties is for example yung BIR (collecting tax agent). NET REALIZABLE VALUE
Based on the concept of “assets shall not be carried at
SUBSEQUENT MEASUREMENT OF RECEIVABLES above their recoverable amount.” (pumapasok sa
conservatism. Wherein hindi sana tayo nagrrecognize
ng mga asset kung hindi naman talaga siya probable na
makapagprovide ng economic benefit and at the same
time measured reliably. Dapat kung magkano lang NRV,
yun lang dapat ang naka reflect doon sa accounting
records. kasi maraming magiging implication kapag
hindi minemeasure yung asset at the right amount or at
the recoverable amount. Youre violating the
conservatism. Kaya nga as much as possible it should be
carried out in the recoverable amount.)

*Net realizable value- for example, may pautang ka na FORMULA OF NET REALIZABLE VALUE (TRADE)
100k. means may receivable ka na 100k. you found out
that one of your customers is may 50k na utang. And
possible na hindi niya mabayaran yon. How much lang
ang maccollect within this year? Dahil nagprovide ka ng
allowance. 50k lang ang magiging net realizable value.
NET kasi mininus mo na. REALIZABLE kasi narealize mo
na yun lang maccollect mo this year. Kasi nga doubtful
ka na etong customer na ito is makabayad.
Estimating NRV of Trade A/R, the following deductions common carrier shall collect the same from the
are made: buyer. (freight charge means pamasahe.
1. Allowance for Freight Charge (mga FOB) Freight collect, ang magsshoulder ng bayad is si
buyer).
Terms related to freight charge
a. FOB- means either “Free on Board” or “Freight FOB DESTINATION- seller ang dapat magbayad (at the
on Board” (pagbyahe ng product). point of shipping, nasa seller ang legal ownership),
Freight Prepaid- seller ang nagbayad
b. FOB destination- ownership of the goods will be
transferred to the buyer only upon the receipt FOB SHIPPING POINT- buyer ang dapat magbayad ng
of the goods at the point of destination. (kung pamasahe (at the point of shipping, nasa buyer ang
ikaw ay nagbebenta, yung ownership ng goods legal ownership),
ay mattransfer lang doon sa customer mo only Freight Collect- buyer ang nagbayad
upon the receipt of the goods at the point of
destination)(ikaw na seller, yung goods ay
dapat makarating kay buyer. At that time na
hindi pa nakakarating yung goods from seller to
buyer. Yung ownership is na kay seller pa until
such time na makarating kay buyer. Ibig sabihin
nito, kapag may nangyari sa mga goods, may
defect or kung ano man ang nagnyari. Si seller
pa rin ang magiging liable pagdating kay buyer.
Kasi nga nakalagay fob destination. Kumbaga
kailangan makarating kay buyer yung goods ng
*freight out is considered as expense
safe. At mattransfer mo lang yung ownership sa
*freight in is an adjunct account because nagiging part
kanya, pag nakarating na sa kanya. And
siya ng cost of sales. Kung ikaw ay bumibili at namasahe
ngayon dahil namamasahe rin at may delivery
ka. Logically, kung amgkano mo binili yung paninda,
expense, ikaw ang magsshoulder niyan until
ipapatong mo ron yung pamasahe. Kaya tinawag mo na
such time na makarating siya sa destination or
cost of sales. Cost ng pagbebenta mo. Eventually,
kay buyer. Sa madaling salita, yung delivery
ibebenta mo rin yan. Example 100k mo binili, namasahe
expense is si seller ang nagbabayad).
ka ng 5k. magiging 105k yung COS mo kasi pinapatong
mo yung pamasahe. Kumbaga chargeable yon. Kaya ang
c. FOB shipping point- ownership of the goods will
tawag sa kanya ay freight in. si buyer ang dapat
be transferred upon shipment of the goods by
magrecord, walang kinalaman si seller.
the seller to the buyer. (kung ikaw ay
nagbebenta, mattransfer mo yung ownership
NOTE: ^^^
sa buyer, at the point of shipment)(kung bumili
-kapag FOB destination, freight prepaid. Walang
si buyer kay seller. At the point of shipping,
problema dahil si seller ang dapat magbayad, at siya
yung ownership is na kay buyer na. wala na kay
talaga ang nagbayad.
seller. Kasi shipping point (At the point of
-kapag FOB destination, freight collect. Si seller pa rin
shipping). Kung yung point of shipping is
ang magrrecord ng freight out. Kapag magrrecognize ng
papunta na kay buyer, yung ownership is na kay
freight out, wag titignan ang freight prepaid or collect.
buyer na. kapag may nangyari, nasira yung
Ang titignan is kung anong FOB which is destination.
paninda including yung pambayad ng
Kapag si buyer ang nagbayad, ibabawas lang ni seller
pamasahe, si buyer na ang sshoulder. Kumbaga
yon sa kokolektahin sa kanya kasi inabonohan lang niya.
wala ng liability si seller kapag fob shipping
Pero ikaw pa rin seller ang magrerecord ng freight out.
point).
-kapag FOB shipping point, freight collect. Walang
problema dahil si buyer ang dapat magbayad, at siya
d. Freight prepaid- freight charge on the goods
talaga ang nagbayad.
shipped was already paid by the seller. (freight
-kapag FOB shipping point, freight prepaid. Kahit na
prepaid means binayaran na ni seller.)
freight prepaid yan na binayaran muna ni seller.
Papatong lang muna yan doon sa magiging receivable
e. Freight collect- freight charge on the goods
mo sa kanya. Pero kahit si seller ang nagbayad, by the
shipped is not yet paid by the seller and the
mere fact na FOB shipping point ito, si buyer pa rin ang Case 2: FOB destination point, freight collect
dapat magrecord ng freight in.

2021

REQUIREMENT 1
*allowance for freight charge- imaminus kay a/r. or
pwedeng deretsong credit na a/r. kaya nagcredit na
allowance for freight charge is para makita bakit pano
madetermine yung NRV.
*BUYER- nag debit ng a/p para mabawasan yung utang
kay seller.

2. Allowance for sales returns (mga customer na

nagbalik because of defect or problem)

Journal Entry:
REQUIREMENT 2 Sales Return xxx
*determine muna magkano yung invoice price. Pero Allowance for sales return xxx
ang given kasi na ibinigay is list price. So kailangang
ibawas yung trade discount. Ang concept ng trade *yung AFSR is deduction sa A/R kapag ippresent mo na
discount is ine encourage mo yung mga buyer na bumili siya sa SFP to determine the NRV.
ng madami or bulk order. Para ma encourage mo sila na
bumili. Nagbigay ka ng 10% and 20%. Kung wala talagang nagreturn, ang entry ay (reverse):
*200k x 90% x 80% para mabilis makuha yung net. Allowance for Sales Return xxx
*SALES DISCOUNT- nakabili na si buyer. Kaya ka Sales Return xxx
nagbibigay ng sales discount, kasi ine encourage mo
siya na mas magbayad ng maaga. 3. Allowance for sales discount (mga nag avail ng
*walang kinalaman si freight out sa total cash cash discount. Magiging deductions pa rin sa a/r)
collection. Kasi may separate record iyan. Kasi
pamasahe yan. Ang classification niyan ay delivery Journal entry:
expense. Sales Discount xxx
Allowance for sales discount xxx
 Pwedeng mag arise don yung tinatawag na bad
debts).
 Also called as “Doubtful
Accounts/Impairment loss” (or pinaiksing
doubtful accounts receivable. mga doubtful
tayo sa mga customer na magbayad.
Impairment loss- generally ginagamit sa
impairment ng assets. Both current and
noncurrent. ang ibig sabihin ng impairment
loss, initially kapag may receivable tayo,
dinedetermine natin yung initial
measurement niya at invoice price or
transaction price. And eventually, nagiging
*Receivable should be measured initially at invoice NRV siya or tinatawag nating recoverable
price and not at list price. Kaya nga mina minus na yung amount. At normally yan ay nababawasan from
TD sa list price. TD is not recorded in the book, since the original price going to NRV. Because may mga
basis is the sales invoice amount. allowance for sales return, allowance for sales
*Sales discount- POV of seller discount, allowance for freight, and allowance
*Purchase discount- POV of buyer for bad debts. Lahat ng yan ay deduction sa
invoice price to determine the NRV. Ang sinasabi
lang ng term na impairment loss, dapat daw for
ex. Based sa computation mo ang maccollect na
lang ay for ex: 80k based on our estimate. Pero
originally nakalibro pa rin siya sa atin at 100k.
dapat daw ibaba mo siya from 100k to 80k

which is the recoverable amount. Any difference

which is 20k. ang tawag don ay impairment
loss.)

 Based on ESTIMATE (hindi siya exact amount.

Hindi siya absolute amount. May basis pa rin ng
pag eestimate ng bad debts. For example:
historical experience ng company for the past
4. Accounting for Bad Debts (mga receivables or 5years or 10years).
pinautang mo na merong doubt ka na hindi na
macollect. Kasi nga may mga indicator na yung 2 METHODS IN ACCOUNTING FOR BAD DEBTS
mga customer mo na may utang sa iyo or may 1. Allowance Method- the allowance method requires
receivables ka. May mga indicator na possible na recognition of a bad debt loss if the accounts are
hindi sila makapagbayad. Halimbawa, naniningil ka doubtful of collection. (may mga times na
walang response, nagappadala ka ng demand letter nagbibigay sa atin ng indicator na ang mga
walang response, tinatawagan mo walang customer natin ay hindi makapagbayad. Ang tawag
response. And then again nabalitaan mo na may don ay doubtful tayo na macollect siya. Pero hindi
issue ng bankruptcy yung may utang sa iyo. pa rin naman tayo Stotally sigurado na hindi na siya
makakabayad or worthless na yung receivable. That
 is why, in compliance with the principle of 1. Kung mapapnsin sa direct write off method, is no
conservatism, we provide allowance for that.) journal entry. Why? Sabi nga, under direct write off
method, magrrecord lang ng bad debts once na
2. Direct Write-off Method- requires recognition of a yung 10k na yan ay proved to be worthless or hindi
bad debt loss only when the accounts proved to be na talaga maccollect.
worthless or uncollectible. Worthless accounts are 2. Direct write off method- mismong bianwas mo na
recorded by debiting bad debts and crediting sa a/r. walang allowance na makikita.
accounts receivable. If the accounts are only 3. Both method- reverse lang. and then debit cash kasi
doubtful of collection, no adjustment is necessary. narecover mo or nacollect mo, and then credit a/r
(totally inalis mo sa libro or sa record. Written off, kasi nabawasan may utang sa iyo.
inalis mo directly. Dito sa direct write off, wala
siyang pakelam kung may doubtful receivables ka PRESENTATION IN THE FS
kasi doubtful pa lang yon. Magrrecord lang ng bad Bad Debts Expense is presented in the Income
debts si direct write off method once you prove it na Statement/Profit or Loss Portion of the Statement of
yung a/r na yon ay worthless or talagang sure na Comprehensive Income. (statement of comprehensive
na hindi na makakabayad. Yun lang yung time na income has two components: 1. Income statement and
magrrecognize siya ng bad debts. Pero kung sa 2. Other comprehensive income. But the point is,
kanya, ay doubtful pa lang yon. No journal entry makikita si bad debts expense sa income statement and
ang gagawin niya. Kaya nga direct write off ang not sa other comprehensive income)
tawag, once na prove na worthless ang a/r iddirect
write-off.)

2 METHODS IN ACCOUNTING FOR BDS - IMPORTANT

NOTE!
Between the two methods, hindi ina allow ng
accounting standard and direct write off method. Ang
Can either be part of:
pinapagamit talaga or ina allow talaga is allowance
1. Distribution Cost/Selling Expense (if granting of
method. However, for BIR purposes or for tax purposes,
credit and collection of a/r is under the
ang ina allow naman ay direct write off method. Why?
supervision of sales manager)
Kasi everytime na nagpprovide ka ng bad debts or
 If the granting of credit and collection of
allowance, ang dinedebit mo ay bad debts or doubtful
accounts are under the charge of the sales
account expense, and then credit allowance. Kung I
manager, doubtful accounts shall be considered
aallow ng BIR na gamitin yung allowance method, para
as distribution cost.
mapaliit ko yung income tax, ang gagawin ko lalakihan
ko yung pag estimate nung bad debts or allowance. Kasi
2. Administrative Expense (If the problem is silent,
estimate lang naman yon. That is the reason kung bakit
normal presentation)
hindi siya ina allow or cinoconsider ng BIR for
If the granting of credit and collection of
computation ng income tax. Ang pinapayagan lang niya
accounts are under the charge of an officer
ay ang direct write-off.
other than sales manager,
doubtful accounts shall be
considered as administrative
expense.

In the absence of any contrary

statement, doubtful accounts
shall be classified as
administrative expense.

Allowance for Bad Debts is presented in

the Statement of Financial
Position/Balance Sheet as Contra asset
account (deduction to Accounts
receivable)
Accounts receivable Pxx
Less: Allowance for Bad Debts xxx
Net Realizable Value Pxx