[ACYFAR1] Accounts Receivables and ADA

• Receivables are assets that represent a contractual right to receive cash or other assets from another entity.
• Trade receivables are receivables arising from the sale of goods and services in the ordinary course of the business.
• Trade receivables include (1) accounts receivable and (2) notes receivable.
• Trade receivables are classified as current assets when they are expected to be realized in cash within the normal operating cycle or one year, whichever is longer.
• Non-trade receivables are classified as current assets only when they are expected to be realized in cash within one year.
• The normal operating cycle of an entity is the time between the acquisition of assets for processing and their realization in cash or cash equivalents.
• Credit balances in customer accounts are presented as current liabilities and are not offset against receivables.
• Debit balances in supplier accounts are recorded as current assets and not offset against payables
• Receivables are initially recognized at fair value plus transaction costs.
• Trade receivable is recognized when the entity has the right to consideration that is unconditional.
• A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due, even if that amount is subject to refund in the future.
• Under FOB shipping point, ownership of goods is transferred to the buyer upon shipment.
• Under FOB destination, ownership of goods is transferred only when the buyer receives the goods.
• Freight prepaid means the seller paid the freight in advance.
• Fright collect means the freight is paid by the buyer upon receipt of goods.
• FOB Shipping point, prepaid is an increase in Accounts receivable.
• FOB Destination Point, Collect is a decrease in accounted receivable.
• Trade discounts are used to encourage buyers to buy in large quantities.
• Cash discounts are used to encourage buyers to pay on time.
• Under the PFRS 15, when the consideration includes a variable amount, the entity is required to estimate the amount to which it expects to be entitled in exchange for transferring the promised goods or services.
• Under the GAAP, cash discounts are accounted for using (1) gross method and (2) net method.
• There are 2 methods in accounting for bad debts: (1) Allowance method and (2) Direct Write-off method
• Write off is when an entity reduces the gross carrying amount of a financial asset when the entity has no reasonable expectations of recovering a financial asset.
• Under the allowance method, the entry to records bad debts expense decreases profit, total current assets, working capital, and current ratio.
• Write offs and recoveries do not affect profit, total current assets, working capital, and current ratio.
• Working capital is total current assets less total current liabilities.
• Current ratio = Current Assets / Current Liabilities
• Assets should not be recognized at more than their recoverable amount.
• Doubtful accounts expense is presented in a statement of profit or loss and other comprehensive income prepared using the function of expense method as administrative expense.
• Receivables denominated in foreign currency are initially translated at the exchange rate at the date of transaction.
• Adjustments to the receivables for changes in the exchange rate are recognized in the statement of profit or loss as foreign exchange gain or loss.
• Accounts receivable is reported at realizable value.
• Accounts receivable is usually presented as a current asset right after cash and cash equivalents.
• The net method is considered the most theoretically correct method because it values the accounts receivable at realizable value.
• The sales discount forfeited account is classified as miscellaneous income reported as other income.
• Under direct write off method, the recoveries and write offs affect profit.
• The percentage of sales is not an appropriate method for estimating bad debts expense because this includes cash and credit sales.