Intacc Receivables

Trade Receivables Overview

• Trade Receivables: Directly arise from selling goods or providing services.

Types of Receivables

• Trade and Other Receivables:

  • Include trade receivables and other current receivables.

• Recognition:

  • Initially measured at fair values;

  • Trade receivables can be measured at face amounts.

Factors Affecting Accounts Receivable

• Credit Sales: Increase accounts receivable; cash sales do not affect it.

• Decreasing Factors:

  • Cash receipts from creditors;

  • Sales discounts, returns and allowances;

  • Write-offs of uncollectible accounts.

• Cash Refunds: Do not affect accounts receivable.

• Recoveries: Do not affect accounts receivable balance.

Recording Methods

• Net Method: More correct for recording accounts receivable.

• Gross Method: More practical; both methods yield the same net income.

Freight Terms

• Shipping Terms:

  • FOB shipping point: seller pays upon shipment.

  • FOB destination: buyer pays at receipt.

• Freight Terms:

  • Freight prepaid: seller pays upfront.

  • Freight collect: buyer pays upon receipt.

Reporting Receivables

• Receivables reported at net realizable value (adjusted for uncollectible amounts).

• Credit Balances:

  • Present separately as current liabilities if negative balances exist.

Allowance for Expected Losses

• Maintain allowance accounts for:

  • Sales returns,

  • Expected sales discounts,

  • Expected freight out,

  • Expected bad debts.

Expected Sales Returns and Discounts

• Estimate sales returns using past data adjusted for future expectations.

• Record expected sales discounts based on receivables entitled to discounts.

Subsequent Measurement of Accounts Receivable

• Measured at net realizable value at each reporting period.

  • Implications:

    • Assets should not be overstated beyond cash realizable.

Gross Method vs. Net Method

• Gross Method:

  • Records A/R and sales gross of discounts.

• Net Method:

  • Records A/R and sales net of discounts.

• Cash Receipts:

  • Within discount period: payment reflects the recorded amount (net method).

  • Beyond discount period: cash receipts reveal lost discounts as income.

Financial Reporting of Receivables

• Classification:

  • Trade receivables: Always current assets.

  • Nontrade receivables classified based on collection period:

    • Within one year: current assets.

    • Beyond one year: noncurrent assets.

Examples of Nontrade Receivables

• Advances to employees and suppliers,

• Subscription receivable,

• Notes receivable for non-inventory sales,

• Accrued income, claims for damages.

Chapter Overview and Objectives

• Understand characteristics and classifications of receivables.

• Learn about transaction impacts on accounts receivable.

• Differentiate between gross and net methods.

• Assess factors influencing net realizable value.