accounts receivable

• credit balances in accounts receivable are current liabilities
• advances from customers is a current liability as part of non-trade receivables
• debit balances in accounts payable are current assets
• advances to suppliers is a current asset
• accounts receivable + credit balance + notes receivable(trade) = total trade receivables
• notes receivable(nontrade) + dividends receivable + advances to suppliers = total current non-trade receivable
• subscription receivable is a contra-equity account
• receivables are initially measured at fair value plus transaction cost
• pfrs 15 allows the non-discounting of the amount of consideration if it is due within 1 year
• a right to consideration is unconditional if only the passage of time is required before payment
• in traditional gaap, cash discounts are accounted for using gross method and net method
• portion collected within the discount period = invoice price x collectible x discount
• portion collected beyond the discount period = invoice price x remaining collectible %
• accounts receivable are subsequently measured at recoverable historical cost
• methods of accounting for bad debts are allowance method and direct write off method
• allowance method is used when the collectability of accounts become doubtful
• allowance method conforms to the concepts of accrual basis of accounting, matching and conservatism
• direct write-off method is used only when the accounts are deemed worthless
• beginning + recovery + bad debts expense - write off = allowance for doubtful accounts end
• under allowance method, entry to record bad debts expense decreases profit while write-offs and recoveries do not affect profit
• working capital = current asset - current liability
• current ratio = current assets divided by current liabilities
• under write-off method, both write-offs and recoveries affect profit, working capital and current ratio
• bad debt expense is recognized when loss becomes probable and can be measured reliably
• three methods pf estimating doubtful accounts
• in percentage of credit sales, bad debt expense is computed without regard to beginning balances of AFDA, write offs and recoveries
• percentage of credit sales favor the income statement
• total sales - cash sales - sales returns and discounts x percentage of net credit sales = bad debts expense
• percentage of receivable favors the sfp and the required balance of allowance for doubtful accounts is computed on this
• beginning balance + net credit sales + *recovery - write off - collections = accounts receivable
• percentage for beginning= total write-offs(except current year) - total recoveries / total net credit sales
• percentage of ending = total write-offs(including current year) - total recoveries / total net credit sales
• aging of receivables favors the sfp and does not adhere to the concept of matching
• gross accounts receivable(before adjustments) - additional write off - AFDA(adjusted) = year end recoverable historical cost
• bad debts expense is presented in statement of profit or loss and comprehensive income as administrative expense
• adjustment to changes in exchange rates are presented in profit or loss
• risk of accounting loss refers to the risk that the carrying amount of a recognized asset will not be recovered
• off-balance sheet risk refers to potential loss that may exceed the amount recognized as an asset