Financial Accounting and Reporting Chapter 10: Accounting for Receivables 

Receivables

• Receivables - Financial assets that represent a contractual right to ==receive cash or another financial asset from another entity==.
• Trade Receivables - Receivables arising from the ==sales of goods and services== in the ordinary source of business.
• Accounts Receivables - Receivables are ==not supported== by promissory notes.
• Notes Receivables - Receivables ==supported== by promissory notes
• Nontrade Receivables - Receivables arising ==from other sources== not from the sale of goods and services.

Presentation of Receivables in the Statement of Financial Position

• Current Assets - Assets collected within the ==normal operating cycle== or one year.
• Noncurrent Assets - Assets collected ==beyond one year== regardless of the length of the normal operating cycle.

Uncollectable Accounts or Bad Debts

• Bad Debts Expense - Certain portion of receivables may not be collected./ uncollectible amount.
• Allowance Method & Direct write off Method - Two methods in the accounting for Bad Debts
• Aging of Accounts Receivable - The most commonly practiced in estimating the uncollectible accounts.

Notes Receivable & Notes Payable

• Promissory Note - A ==written unconditional promise to pay the lender== or someone else who acquires the note, a certain in money, on demand or at definite time, signed by the maker.
• Maker - The one who made and signed the note and makes payment upon due date. Known as a ==borrower or debtor==.
• Payee - The one whose order the note is payable and receives payment upon due date. Known as ==lender or creditor==.

Honored and Dishonored Note

• Honored Note - Maker pays the note at the ==due date==.
• Dishonored Note - Maker ==failed to pay== the note at the maturity date.
• Discount Period - The remaining term of the note from the date of discounting to the maturity date.

Terminologies

• Principal - Refers to the face value of the note or the amount borrowed
• Interest - Refers to the rental for the use of money or charges for borrowed money. I= PxRxT
• Interest Rate - Refers to the percentage or factor imposed as charges for the borrowed money. Rate appearing in the face of the note.
• Interest Expense - Refers to the interest that a debtor is obliged to pay to the creditor.
• Interest Income - Refers to the interest that a creditor is entitled to receive from the debtor.
• Maturity Value - Refers to the amount that is due at the maturity date. Principal+Interest
• Maturity Date - It is known as the due date. Refers to the date when the note becomes due for the payment or collection.
• Date of the Note - Refers to the date when the note was made and signed.
• Term of the Note - Refers to the life of the note. Expressed as days, months, or years.
• Maturity Date Non Interest Bearing Note - It is equal to the face amount of the note.
• Maturity Date Interest Bearing Note - It is equal to the face amount of the note + interest.
• Interest Bearing Note - Refers to the note that provides for the payment of the interest for the period from the issuance date to the maturity date.
• Time - Refers to the period from the date of the note up to the maturity date.
• Discounting Notes - Refers to the act of transferring a note with recourse to a bank.
• Proceeds/ Net Proceeds - Refers to the amount received by the endorser from the endorsee. Maturity Value- Discount
• Discount - Refers the amount deducted to the Maturity Value. MV x DR x DP
• Discount Rate - Refers to the rate charged by the bank upon discounting.
• Discount Period - Refers to the numbers of the days from the date of discounting up to the maturity date of the note.

\