Chapter 9
Content
CHAPTER 9
HOW DO WE DEFINE RECEIVABLE?
PAS 39 defines loans and receivables as “non-derivative financial assets with fixed or determinable payments that are quoted in an active market” (Financial Accounting, 2008 edition by Valix and Peralta) RECEIVABLES are financial assets that represent a contractual right to receive cash or other financial assets from another entity or costumer.
EXAMPLE OF RECEIVABLE
1.
TRADITIONAL ACCOUNTS RECEIVABLE (TRADE DEBTORS/ TRADE ACCOUNTS RECEIVABLE)
1.
Not supported by promissory note.
TRADE RECEIVABLE
Normally supported by credit invoice issued by the company and has credit terms. The credit terms stated in the invoice are the basis of the accounting department on whether the costumer’s account is not yet due or past due already.
Cont…
2. NOTES RECEIVABLE
supported by a formal promise to pay in the
form of a note.
3. LOANS RECEIVABLE
A receivable arising from banks and other
financial institution.
WHAT ARE THE OTHER ACCOUNTING ELEMENTS THAT AFFECT RECEIVABLE?
DISCOUNTS
TYPES OF DISCOUNTS
1. TRADE DISCOUNT- a discount that is not recorded in the books of accounts. A discount granted to a costumer because of the bulk order that they made. Normally expressed in terms of percentages and will encourage the costumers to buy in commercial quantity. “The more costumer will buy, the bigger the discount they get”
Types of Discount
2. CASH DISCOUNT- the discount that is recorded in the books. The kind of discount that you can see in your income statement in order for you to come up with net sales. This will encourage the costumers to pay on time because if they pay early or within the credit terms; they can avail of the discount
RETURNS
ANALYSIS: TYPES OF RETURNS a. A problem on the quality of products that we are selling. This is an inefficiency on the 1. SALES RETURNS- goods by which the part of the supplier and therefore we have costumers have physically returned. Maybe a to matter checkof on the shipment quality of so that wrong or services wrong deliveries merchandise, thus the merchandiser were weof can get quality goods. physically returned to control the company, subb. A problem on the and or inspection merchandise were delivered to them. of standard shipment to our customers. 1. people are lack in training 2. people are at fault
ANALYSIS: 2. SALES ALLOWANCESthese areeffective the a. Positive side, sale force is very in goods, which were delivered to is customers sales persuasiveness and able to but defective. For this reason, the persuade customers on the last minute of company agrees to reduce the receivable defective goods delivery acceptance account from these customers by grating a b. Investigate further because if this will sales allowance. prevail, our customers might get rid of this situation and find a new supplier c. Negative side, customers were just forced to accept the goods to avoid inconvenience in returning them
RISK EVALUATION
1. Conduct a field investigation on the customers paying behavior. 2. Ask the applicant/customer applying for credit facility, a financial report duly REFLECTION: certified by a Certified Public Do you believe that the values of your staff Accountant, then prepare a financial are of the essence in returns? analysis What are the company’s social responsibilities here?
RECEIVABLE ANALYSIS
1. Accounts Receivable Turnover: Total Credit Sales Average Accounts Receivable 2. Number of Days in Receivable 365 days accounts receivable turnover
MANAGING ACCOUNTS RECEIVABLE
Charging bad accounts into our operating performances: a. If the company is operating performances focus, formula will be: by the estimated Creditthe Sales, multiplied
percentage of a bad accounts and is the amount that will reduce company’s receivable b. If the company is focused on realizing its account. the formula will be: receivables Accounts Receivable x % of bad account minus allowance for doubtful account balance
How to count the age of your receivable?
c. Aging of accounts receivable When the Under credit terms is 2/10, n/30 tool and the buyer had purchased the technical in estimating bad So we have to age the receivable in accordance the merchandise on Jan. 1. This is due on Jan. 31. accounts, the company will consider the age of with the ff. from Jan 1-31 31 days receivables and it will be the determining Notthe yetminus due accounts 1-30 P150,000 x 0% = P0. 00 Jan. 1 (the 1stdays day) 1 day_ 31 to 60 days P 50,000 x 5% =become P2,500 Difference 30 days might factor by which the receivable 61 to 90 days P1.25,000 15% = P3,750 This account when unpaid on Feb. will be x classified as 31 days bad or uncollectable.
Over days P 15,000 x 40% = P6,000 to 60 91 days overdue. If the accounts are unpaid on April 25, it will now be classified as Totals P240,000 P12,250 over 91 days. Jan 1-31 31 days Total estimated P12,250 Feb 1-28 bad accounts 28 days Less: allowances P10,000 March1-31 for doubtful accounts 31 days Remainder be charged to bad accounts P 2,250 April to 1-25 25 days Total 115 days Less Jan 1 1 day Difference 114 days
WHO HANDLES THE RECEIVABLES?
1. Credit and Investigation personnel or (CI) 2. Sales representative 3. Collectors 4. Cashiers 5. bookkeepers 6. Auditors
HOW TO CONVERT YOUR RECEIVABLE FASTER
1.
Pledging
This is a way wherein our company can obtain cash using company’s receivable as a pledge or 2. Assignment a collateral security for such loan payment. This is a formal type of pledging since specific accounts receivable will serve as collateral. 3. Factoring Assignment could either be on non-notification Actually selling its notified) accounts receivable to basis factor (customer are not or notification (lender). Factoring could either be: (customer are notified). Two concerned parties a. factoring areCasual a. assignee (lender);and b. assignor b. As a continuing agreement (borrower). c. Credit cards
INDUSTRY PRACTICE
1. Customer can now deposit their payment directly to the banking system. 2. Automatic debit arrangement with the banking system. 3. Phone banking 4. Internet access
HOW DO WE DEFINE RECEIVABLE?
PAS 39 defines loans and receivables as “non-derivative financial assets with fixed or determinable payments that are quoted in an active market” (Financial Accounting, 2008 edition by Valix and Peralta) RECEIVABLES are financial assets that represent a contractual right to receive cash or other financial assets from another entity or costumer.
EXAMPLE OF RECEIVABLE
1.
TRADITIONAL ACCOUNTS RECEIVABLE (TRADE DEBTORS/ TRADE ACCOUNTS RECEIVABLE)
1.
Not supported by promissory note.
TRADE RECEIVABLE
Normally supported by credit invoice issued by the company and has credit terms. The credit terms stated in the invoice are the basis of the accounting department on whether the costumer’s account is not yet due or past due already.
Cont…
2. NOTES RECEIVABLE
supported by a formal promise to pay in the
form of a note.
3. LOANS RECEIVABLE
A receivable arising from banks and other
financial institution.
WHAT ARE THE OTHER ACCOUNTING ELEMENTS THAT AFFECT RECEIVABLE?
DISCOUNTS
TYPES OF DISCOUNTS
1. TRADE DISCOUNT- a discount that is not recorded in the books of accounts. A discount granted to a costumer because of the bulk order that they made. Normally expressed in terms of percentages and will encourage the costumers to buy in commercial quantity. “The more costumer will buy, the bigger the discount they get”
Types of Discount
2. CASH DISCOUNT- the discount that is recorded in the books. The kind of discount that you can see in your income statement in order for you to come up with net sales. This will encourage the costumers to pay on time because if they pay early or within the credit terms; they can avail of the discount
RETURNS
ANALYSIS: TYPES OF RETURNS a. A problem on the quality of products that we are selling. This is an inefficiency on the 1. SALES RETURNS- goods by which the part of the supplier and therefore we have costumers have physically returned. Maybe a to matter checkof on the shipment quality of so that wrong or services wrong deliveries merchandise, thus the merchandiser were weof can get quality goods. physically returned to control the company, subb. A problem on the and or inspection merchandise were delivered to them. of standard shipment to our customers. 1. people are lack in training 2. people are at fault
ANALYSIS: 2. SALES ALLOWANCESthese areeffective the a. Positive side, sale force is very in goods, which were delivered to is customers sales persuasiveness and able to but defective. For this reason, the persuade customers on the last minute of company agrees to reduce the receivable defective goods delivery acceptance account from these customers by grating a b. Investigate further because if this will sales allowance. prevail, our customers might get rid of this situation and find a new supplier c. Negative side, customers were just forced to accept the goods to avoid inconvenience in returning them
RISK EVALUATION
1. Conduct a field investigation on the customers paying behavior. 2. Ask the applicant/customer applying for credit facility, a financial report duly REFLECTION: certified by a Certified Public Do you believe that the values of your staff Accountant, then prepare a financial are of the essence in returns? analysis What are the company’s social responsibilities here?
RECEIVABLE ANALYSIS
1. Accounts Receivable Turnover: Total Credit Sales Average Accounts Receivable 2. Number of Days in Receivable 365 days accounts receivable turnover
MANAGING ACCOUNTS RECEIVABLE
Charging bad accounts into our operating performances: a. If the company is operating performances focus, formula will be: by the estimated Creditthe Sales, multiplied
percentage of a bad accounts and is the amount that will reduce company’s receivable b. If the company is focused on realizing its account. the formula will be: receivables Accounts Receivable x % of bad account minus allowance for doubtful account balance
How to count the age of your receivable?
c. Aging of accounts receivable When the Under credit terms is 2/10, n/30 tool and the buyer had purchased the technical in estimating bad So we have to age the receivable in accordance the merchandise on Jan. 1. This is due on Jan. 31. accounts, the company will consider the age of with the ff. from Jan 1-31 31 days receivables and it will be the determining Notthe yetminus due accounts 1-30 P150,000 x 0% = P0. 00 Jan. 1 (the 1stdays day) 1 day_ 31 to 60 days P 50,000 x 5% =become P2,500 Difference 30 days might factor by which the receivable 61 to 90 days P1.25,000 15% = P3,750 This account when unpaid on Feb. will be x classified as 31 days bad or uncollectable.
Over days P 15,000 x 40% = P6,000 to 60 91 days overdue. If the accounts are unpaid on April 25, it will now be classified as Totals P240,000 P12,250 over 91 days. Jan 1-31 31 days Total estimated P12,250 Feb 1-28 bad accounts 28 days Less: allowances P10,000 March1-31 for doubtful accounts 31 days Remainder be charged to bad accounts P 2,250 April to 1-25 25 days Total 115 days Less Jan 1 1 day Difference 114 days
WHO HANDLES THE RECEIVABLES?
1. Credit and Investigation personnel or (CI) 2. Sales representative 3. Collectors 4. Cashiers 5. bookkeepers 6. Auditors
HOW TO CONVERT YOUR RECEIVABLE FASTER
1.
Pledging
This is a way wherein our company can obtain cash using company’s receivable as a pledge or 2. Assignment a collateral security for such loan payment. This is a formal type of pledging since specific accounts receivable will serve as collateral. 3. Factoring Assignment could either be on non-notification Actually selling its notified) accounts receivable to basis factor (customer are not or notification (lender). Factoring could either be: (customer are notified). Two concerned parties a. factoring areCasual a. assignee (lender);and b. assignor b. As a continuing agreement (borrower). c. Credit cards
INDUSTRY PRACTICE
1. Customer can now deposit their payment directly to the banking system. 2. Automatic debit arrangement with the banking system. 3. Phone banking 4. Internet access
