ACCTG101 Receivables II

ACCTG101

Receivables II

Arthur Rosada, CPA

CURRENT

AND NON-CURRENT RECEIVABLES

• Assets are considered as current if they are realizable within one year or within the operating cycle, whichever is longer.

• Receivables are considered current if they are trade receivables and non-trade receivables are current if realizable within one year or the operating cycle, whichever is longer.

• Trade receivable and nontrade receivable which are currently collectible shall be presented as one line item called “trade and other receivables”

• In the case of long-term installments receivable (real estate installment sales) where a major portion of the receivables will be collected beyond the normal operating cycle only the portion currently due is shown as current and the balance as noncurrent.

TRADE RECEIVABLES

Trade receivables are receivables arising from the ordinary course of the business.

Hence, they are always considered as current assets.

Illustration:

The company sold inventory for P50,000 on account.  It has a receivable from insurance amounting to P10,000.  Such is collectible within one year.  It also has a P25,000 receivables from other sources, which are collectible after two years.

How much should be considered as current receivables?

Answer to Illustration:

• P50,000 + P10,000 = P60,000

Multiple Choice

Review Question:

The company sold inventory for P80,000 on account. It has a receivable from insurance amounting to P20,000. Such is collectible within one year. It also has a P30,000 receivables from other sources, which are collectible after two years.

How much should be considered as current receivables?

• P20,000

• P80,000

• P100,000

Explanation:

• P80,000 + P20,000 = P100,000

Multiple Choice

Review Question:

On the December 31, 2020 statement of financial position of Roger Co., the current receivables consisted of the following:

Trade accounts receivable P93,000

Allowance for uncollectible accounts (2,000)

At December 31, 2020, the correct total of Roger’s current net receivables was

• 91,000

• 94,000

• 93,000

Explanation:

• 93,000 - 2,000 = 91,000

  
  

• NOTE:  It is presented net of the allowance which is a contra-asset account.

Multiple Choice

Review Question:

On the December 31, 2020 statement of financial position of Roger Co., the current receivables consisted of the following:

Trade accounts receivable P93,000

Allowance for uncollectible accounts (2,000)

Claim against shipper for goods lost in transit

(November 2020) 3,000

At December 31, 2020, the correct total of Roger’s current net receivables was

• 91,000

• 94,000

• 93,000

Explanation:

• 93,000 - 2,000 + 3,000 = 94,000

  
  

• The claims against the shipper is presumed to be currently collectible.  Hence, it is part of current assets.

CONSIGNED GOODS

Consigned goods are goods left by the consignor in the possession of the consignee to be sold by the consignee to third parties. 

There is no sale yet.

There will only be a sale once the goods have actually been sold to third parties.

Hence, the consigned goods still belongs to the consignor.  There is no receivable yet.

Illustration:

Pete Company bought P100,000 inventory.  Pete sold half of this on account for P70,000.  Later, it sent P25,000 of this on consignment at a selling price of P40,000.  No collection has yet been made.  How much should be the accounts receivable at the end of the period?

Answer to Illustration:

• P70,000

• The sale made on account was P70,000.

• It will be recorded with a debit to accounts receivable and a credit to sales.  

• The consigned goods still belong to Pete.  

• No journal entry is made as regards that.

Multiple Choice

Review Question:

Pete Company bought P100,000 inventory. Pete sold half of this on account for P70,000. P40,000 of the P70,000 was already collected. Later, it sent P25,000 of this on consignment at a selling price of P40,000. No collection has yet been made. How much should be the accounts receivable at the end of the period?

• 105,000

• 125,000

• 30,000

• 15,000

Explanation

• P70,000 – P40,000 = P30,000

• The sale made on account was P70,000.  It will be recorded with a debit to accounts receivable and a credit to sales.  

• But collection was amounting to P40,000 was already made.  

• Hence, a debit to cash and a credit to accounts receivable shall be recorded.  

• The consigned goods still belong to Pete.  No journal entry is made as regards that.

The choices will be included on the next slide

Multiple Choice

At December 31, 2020, the correct total of Roger’s current net receivables was

• 91,000

• 94,000

• 93,000

Explanation:

• 93,000 - 2,000 + 3,000 = 94,000

• Unsold goods should not be recorded in accounts receivable and sales. 

• Consigned goods are goods left by the consignor in the possession of the consignee to be sold by the consignee to third parties.  

• There is no sale yet.  

• There will only be a sale once the goods have actually been sold to third parties.  

• Hence, the consigned goods still belongs to the consignor.  There is no receivable yet.

  Security deposit amounting to P30,000 on lease of warehouse is a non-current asset.

SALES RETURNS 

Sales have a normal balance of credit because they positive income items. 

Sales returns on the other hand are reductions in the computation of net sales.

Hence, they are recorded by debiting them.

Illustration 1:

Rice Company sold inventory on account for P100,000.  How is the sale recorded?

Answer to Illustration:

• Accounts receivable                           100,000

     Sales                                                                                              100,000

Illustration 2:

The customer returned one fourth of the goods it received.  How is the return of P25,000 recorded by Rice?

Answer to Illustration:

• Sales Returns                                             25,000

     Accounts receivable                                                              25,000

Illustration 3:

If the gross sales amounted to P100,000 and the sales returns amounted to P25,000, how much is the net sales?

Answer to Illustration:

• P100,000 – P25,000 = P75,000

Illustration 4:

Lyn Corp. has a beginning balance for accounts receivable amounting to P20,000.  It has net sales of P75,000 and collection of P40,000. 

How much is the ending balance of the accounts receivable?

Answer to Illustration:

• P20,000 + P75,000 – P40,000 = P55,000

Multiple Choice

Review Question:

Lyn Corp. has a beginning balance for accounts receivable amounting to P30,000. It has net sales of P75,000 and collection of P45,000. How much is the ending balance of the accounts receivable?

• 30,000

• 75,000

• 15,000

• 60,000

Explanation:

• P30,000 + P75,000 – P45,000 = P60,000

The choices will be included on the next slide

Multiple Choice

What amount should Sonya report for account receivable, before allowances, at December 31, 2020?

• 2,625,000

• 3,375,000

• 1,125,000

• 1,000,000

Explanation:

• 650,000 + 2,700,000 - 75,000 – 2,150,000 = 1,125,000

• NOTE: The requirement is before allowances.

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Make sure to answer the

Receivables Part 2 Activity