INTERMEDIATE ACCOUNTING, PART 1

RECEIVABLES: INTRODUCTION TO RECEIVABLES

AND ACCOUNTING FOR ACCOUNT RECEIVABLES
Definition
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market (PAS 39).
Receivables represents any legitimate claim from customers and others, most frequently arising from sales of
merchandise, claims for money lent, or the performance of services. Also, receivable are normally expected to be
settled by the receipt of cash.
Recognition
Receivables are recognized when transfer of resources takes place (e.g. when the claim arises).
Valuation
1. Initial – Receivable is measured at fair value plus transaction costs that are directly attributable to the
acquisition.
2. Subsequent – Receivable shall be measured at amortized cost using effective interest method.
Classification
1. Trade receivables – receivables arising from sale of goods or services in the normal course of business (e.g.
accounts receivable and notes receivable).
2. Non-trade receivables – all other claims that are not classified as trade receivables (e.g. loans to officers and
employers, advances to affiliates, advances to suppliers, accrued income, subscriptions for the entity’s securities,
claims for tax refunds or rebates, claims against suppliers for returned, damaged or lost goods, overpayment to
suppliers).
Financial Statement Presentation
1. Items presented in the current asset section
 Trade receivables collectible within twelve month or operating cycle, whichever is longer
 Non-trade receivable collectible within twelve months
2. Items presented in the noncurrent section
 Non-trade receivables collectible beyond one year
3. Item presented in the stockholders’ equity section
 Subscription receivables which are expected to be collected beyond twelve months is presented as deduction
from subscribed share capital.
Moreover, the details comprising the receivables should be disclosed in the notes to financial statements.
Specific considerations in reporting receivable balance
1. Accounting for accounts receivables
 Initial measurement
 Subsequent measurement after considering allowances to freight charges, sales discounts, return, allowances
and doubtful accounts.
2. Accounting for notes receivables
 Initial measurement (interest bearing or non-interest bearing notes receivables)
 Subsequent measurement using effective interest method.
3. Accounting for dishonored notes
4. Accounting for loans receivables
5. Accounting for loan impairment
6. Accounting for receivable financing
Introduction and Accounting for Accounts Receivable
1. These are receivables that arise from the sale of goods or services in the ordinary course of business.
a. Financial assets b. Trade receivables c. Note receivables d. Account receivables
2. Non-trade receivables are
a. non-derivative financial instruments which do not require settlement in cash
b. non-derivative financial assets which may or may not be settled through the receipt of cash
c. derivative or non-derivative financial instruments which do not require settlement in cash
d. receivables other than trade receivables
3. Trade receivables are presented as current assets
a. when they are collectible within one year
b. when they are collectible within an entity’s normal operating cycle
c. when they are backed by sufficient collateral security
d. when they are collectible within an entity’s normal operating cycle, even if the normal operating cycle extends
beyond one year.
4. Which of the following receivables may be presented as part of current assets?
a. Receivable from a subscriber of the entity’s own shares collectible within 12 months from end of reporting
period.
b. Advances to affiliates, the settlement date is not yet agreed upon.
c. Loan receivables from the entity’s officers collectible beyond 12 months
d. Long-term receivables of a construction firm. The firm’s normal operating cycle extends beyond one year.
5. A discount given to a customer for purchasing a large volume of merchandise is typically referred to as a
a. Cash discount b. Trade discount c. Size discount d. Quantity discount

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6. A method of estimating bad debts that focuses on the statement of financial position rather than the statement of
comprehensive income is the allowance method based on
a. Direct write-off c. Credit sales
b. Aging the trade receivable accounts d. Specific accounts determined to be uncollectible
7. Estimation of uncollectible accounts receivable based on accounts receivable
a. Emphasizes measurement of the net realizable value of accounts receivable
b. Emphasizes measurement of bad debt expense
c. Emphasizes measurement of total assets
d. Is only acceptable for tax purposes
8. Under GAAP, an entry should be made to the bad debt expense account
a. When an account receivable with terms 2/10, n/30 is past thirty days due
b. When an account receivable previously written off is determined to be collectible
c. When an account receivable is determined not to be collectible and is written off
d. In the period when a sale is made and not when the receivable associated with the sale is determined to be
uncollectible
9. Which of the following accounts is not affected when an account receivable written off as uncollectible is
unexpectedly collected?
a. Cash b. Accounts receivable c. Bad debt expense d. Allowance for bad debts
10. A company writes off as uncollectible an account receivable from a bankrupt customer. The company has an
adequate amount in its Allowance for Bad debts. This transaction will
a. Decrease profit for the period c. Decrease the amount of owners’ equity
b. Decrease total current assets d. Have no effect on total current assets
11. A method of estimating uncollectible account that emphasizes income measurement rather than asset valuation is
the allowance method based on
a. Direct write-off c. Gross sales
b. Aging the receivables d. Credit sales less returns and allowances
12. The entry debiting accounts receivable and crediting allowance for doubtful accounts would be made when
a. A customer pays its account balance
b. A customer defaults on its account
c. A previously defaulted customer pays its outstanding balance
d. Estimated uncollectible receivables are too low
13. When the direct write-off method of recognizing bad debts expense is used, the entry to write-off a specific
customer account would
a. Increase net income
b. Have no effect on net income
c. Increase both accounts receivable and net income
d. Decrease both accounts receivable and net income
14. When the direct write-off method of recognizing bad debts expense is used, the entries at the time of collection of
an account previously written off would
a. Increase the net realizable value of the accounts receivable
b. Decrease the net realizable value of the accounts receivable
c. Increase net income
d. Decrease net income
15. The “aging method” of estimating bad debts is
a. A method in which a rate, which is usually determined from past experience of the business, is multiplied by
the ending accounts receivable balance in order to get the required allowance balance.
b. A procedure where bad debts are directly related to sales from which they arise and are reported in the same
year of sale.
c. An analysis of the accounts whether or not they are past due.
d. A procedure where the amounts of sales for the year is multiplied by a certain rate to get the bad debts
expense.
PROBLEM SOLVING
Trade and Other Receivables
Use the following to answer the next two questions
Information from the records of ABC Co. is shown below:
Accounts receivable, net of P8,000 credit balance in customers’ accounts P 100,000
Notes receivable (trade) 15,000
Notes receivable (non-trade), P15,000 collectible within one year 30,000
Dividends receivable 2,000
Subscription receivable 2,000
Advances to officers and employees (due in 10 months) 4,000
Accounts payable, net of P10,000 debit balance in suppliers’ accounts 3,000
1. How much is the total trade receivables?
a. 108,000 b. 118,000 c. 123,000 d. 133,000
2. How much is the total current receivables?
b. 156,000 b. 144,000 c. 150,000 d. 154,000

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3. The Receivable control account of AAA Company shows a balance of P114,000 as of December 31, 2016. An
analysis of the account showed the following:
Accounts receivable from regular customers P 52,000
Advances to creditors on purchase orders 15,000
Customers’ credit balances ( 5,000)
Notes receivable dishonored, charged back to accounts receivable 4,000
Selling price of goods shipped to customers on December 31, 2016
under terms FOB shipping point 8,000
Subscription receivable, due June 30, 2017 40,000
The correct balance of current trade accounts receivable of AAA as of December 31, 2016 is
a. P51,000 b. P59,000 c. P60,000 d. P64,000
Accounting for Account Receivable
4. You are given the following information relating to AAA Trading, a general merchandising company:
Rate of gross profit on sales 20%
Accounts receivable, December 31, 2015 P 80,000
Collection on accounts receivable in 2016 430,000
Cost of goods available for sale in 2016 460,000
Merchandise inventory, December 31, 2016 100,000
Assuming all sales were on account, what was the company’s Accounts receivable balance on December 31, 2016?
a. P120,000 b. P100,000 c. P90,000 d. P50,000
5. The following data were taken from the records of AAA Company for the year ended December 31, 2016:
Sales on account P 3,600,000
Notes received to settle accounts 400,0000
Provision for doubtful accounts 90,000
Accounts receivable determined to be worthless 25,000
Purchases on account 3,900,000
Payments to creditors 3,200,000
Discounts allowed by creditors 260,000
Merchandise returned by customer 15,000
Collections received to settle accounts 2,450,000
Notes given to creditors in settlement of accounts 250,000
Merchandise returned to suppliers 70,000
Payments on notes payable 100,000
Discounts taken by customers 40,000
Collections received in settlement of notes 180,000
What is the net realizable value of accounts receivable on December 31, 2016?
a. P890,000 b. P825,000 c. P670,000 d. P605,000
6. On June 1, 2016, AAA Corp. sold merchandise with a list price of P200,000 to BBB Corp. on account. AAA Corp.
allowed trade discounts of 20% and 10%. Credit terms were 2/10, n/30 and sale was made FOB shipping point.
AAA Corp. prepaid P3,000 of insurance for BBB Corp. as an accommodation.
On June 10, 2016, BBB paid AAA Corp. his full account of
a. P141,120 b. P144,120 c. P147,060 d. P150,000
7. On March 1, 2016, the AAA Company recorded two sales of P20,000 and P30,000 under credit terms of 3/10,
n/30. Payment for the P20,000 sale was received March 10. Payment for the P30,000 sales was received on
March 25. Under the gross method and net method, net sales in the March 2016 income statement are
Gross method Net method Gross method Net method
a. P48,500 P48,500 c. P49,400 P48,500
b. P48,500 P49,500 d. P49,400 P49,400
Use the following to answer the next two questions
On December 31, 2016, ABC Co. sold goods for ₱20,000 to XYZ, Inc. on account. To induce sale, ABC Co. provides its
buyers the right to return goods within 30 days upon purchase if the buyers are not satisfied with the goods.
8. Assuming ABC Co. can reliably estimate that 20% of the goods sold will be returned within the agreed period of
time but 25% of the goods are actually returned on January 5, 2017, how much is the net accounts receivable
recognized on the date of sale?
a. 20,000 b. 16,000 c. 15,000 d. 0
9. Assuming ABC Co. cannot reliably estimate future returns, how much is the net accounts receivable recognized on
the date of sale?
a. 20,000 b. 16,000 c. 15,000 d. 0
10. AAA Company had the following information relating to its accounts receivable for the year 2016:
Accounts receivable – January 1 P 12,000,000
Credit sales 20,000,000
Collection from customers, excluding the recovery of accounts written off 17,000,000
Accounts written off as worthless 300,000
Sales returns 1,000,000
Recovery of accounts written off 100,000
Estimated future sales returns on December 31 400,000
Estimated uncollectible accounts on December 31, per aging 1,000,000

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AAA should report the December 31, 2016 accounts receivable, before allowance for sales returns and
uncollectible accounts, at
a. P12,300,000 b. P13,130,000 c. P13,700,000 d. P13,800,000
11. AAA Company determined that the net realizable value of its accounts receivable at December 31, 2016 based on
an aging of the receivables, was P15,000,000. Additional information is as follows:
Allowance for uncollectible accounts – 1/1/2016 P 1,500,000
Uncollectible accounts written off during 2016 1,000,000
Uncollectible accounts recovered during 2016 200,000
Accounts receivable – December 31, 2016 17,000,000
For 2016, what should be AAA’s uncollectible accounts expense?
a. P2,000,000 b. P1,800,000 c. P1,500,000 d. P1,300,000
12. AAA Company operates in an industry that has a high rate of bad debts. On December 31, 2016, before any
year-end adjustments, the accounts receivable balance was P20,000,000 and its allowance for doubtful accounts
balance was P1,500,000. The year-end balance reported for the allowance for doubtful accounts is based on the
following schedule:
Time Outstanding Accounts Receivable Percent Uncollectible
Under 30 days P 10,000,000 5%
31 - 180 days 5,000,000 10%
181 - 360 days 3,000,000 30%
More than one year 2,000,000 100%
The accounts which have been outstanding for more than one year and 100% uncollectible would be written off
immediately. What should be the doubtful accounts expense for the year ended December 31, 2016?
a. P1,900,000 b. P2,000,000 c. P2,400,000 d. P3,900,000
13. The following accounts were abstracted from AAA Company’s unadjusted trial balance at December 31, 2016:
Debit Credit
Accounts receivable P 20,000,000
Allowance for doubtful accounts 300,000
Net credit sales P 70,000,000
AAA estimates that 5% of the gross accounts receivable will become uncollectible. The doubtful accounts expense
for the year ended December 31, 2016 should be
a. P3,500,000 b. P1,300,000 c. P1,000,000 d. P700,000
14. All of AAA Company’s sales are on a credit basis. The following information is available for 2016:
Allowance for doubtful accounts, 1/1/2016 P 1,000,000
Sales 22,000,000
Sales returns 2,000,000
Accounts written off as uncollectible 600,000
Recovery of accounts written off 200,000
AAA provides for doubtful accounts expense at the rate of 10% of net sales. At December 31, 2016, the
allowance for doubtful accounts balance should be
a. P3,200,000 b. P2,800,000 c. P2,600,000 d. P2,000,000
15. On January 1, 2016, the balance of accounts receivable of AAA Company was P5,000,000 and the allowance for
doubtful accounts on same date was P800,000. The following data were gathered:
Credit Sales Writeoffs Recoveries
2013 P 10,000,000 P 250,000 P 20,000
2014 14,000,000 400,000 30,000
2015 16,000,000 650,000 50,000
2016 25,000,000 1,100,000 145,000
Doubtful accounts are provided for as percentage of credit sales. The accountant calculates the percentage
annually by using the experience of the three years prior to the current year. How much should be reported as
2016 doubtful accounts expense?
a. P330,000 b. P750,000 c. P812,500 d. P875,000
16. The AAA Publishing Company follows the procedure of debiting Bad Debts Expense for 2% of all new sales. Sales
for four consecutive years and year-ended allowance account balances were as follows:
Allowance for
Year Sales Bad Debts
2013 P 2,100,000 P 21,500
2014 1,975,000 35,500
2015 2,500,000 50,000
2016 2,350,000 66,000
Compute the amount of accounts written off for the year 2016.
a. P35,500 b. P31,000 c. P25,500 d. P5,500
Use the following information to answer the next three questions
AAA Corporation provided for uncollectible accounts receivable under the allowance method since the start of its
operations to December 31, 2016. Provisions were made monthly at two percent of credit sales; bad debts written off
were charged to the allowance account; recoveries of bad debts previously written off were credited to the allowance
account; and no year-end adjustments to the allowance account were made. AAA's usual credit terms are net 30
days.

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The credit balance in the allowance for doubtful accounts was P260,000 at January 1, 2016. During 2016, credit sales
totaled P18,000,000, interim provisions for doubtful accounts were made at two percent of credit sales, P180,000 of
bad debts were written off, and recoveries of accounts previously written off amounted to P30,000. AAA installed a
computer system in November 2016 and an aging of accounts receivable was prepared for the first time as of
December 31, 2016. A summary of the aging is as follows:
Balance in Estimated %
Classification by month of sale each category Uncollectible
November-December 2016 P 2,280,000 2%
July-October 2016 1,200,000 15%
January-June 2016 800,000 25%
Prior to January 2016 260,000 80%
Based on the review of collectibility of the account balances in the "prior to January 1, 2016" aging category,
additional receivables totaling P120,000 were written off as of December 31, 2016. Effective with the year ended
December 31, 2016, AAA adopted a new accounting method for estimating the allowance for doubtful accounts at the
amount indicated by the year-end aging analysis of accounts receivable.
17. How much is the adjusted balance of the allowance for doubtful accounts as of December 31, 2016?
a. P350,000 b. P537,500 c. P633,600 d. P753,600
18. The recorded allowance for doubtful accounts should be increased by
a. P283,600 b. P187,600 c. P67,600 d. P0
19. AAA Company had the following account balances at December 31, 2016:
Accounts receivable P 1,800,000
Allowance for doubtful accounts (before any provisions
for 2016 doubtful accounts expense) 32,000
Credit sales for 2016 3,500,000
AAA Co. is considering the following methods of estimating doubtful accounts for 2016:
 2% of credit sales
 5% of accounts receivable
The doubtful accounts under the percentage of credit sales method and percentage of accounts receivable
method, respectively are
a. P70,000 / P58,000 b. P70,000 / P90,000 c. P102,000 / P58,000 d. P102,000 / P90,000
20. The balances of selected accounts taken from the December 31, 2015 of Trek Company are shown below:
Accounts receivable P 674,000
Allowance for doubtful accounts 24,000
The following transactions (in summary) affecting accounts receivable during the year ended December 31, 2016:
Sales (all on account, terms, 2/10, 1/15, n/60) P 3,000,000
Cash received from customers
Customers paying w/in the 10-day discount period 1,764,000
Customers paying w/in the 15-day discount period 990,000
Recovery of accounts written off 6,000
Customers paying beyond the discount period 440,000
Accounts receivable written off as worthless 22,000
Credit memo for sales returns 12,000
It is the company’s policy to provide for uncollectible accounts equal to 1% of sales. How much is the net
realizable value of the accounts receivable as of December 31, 2016?
a. P362,000 b. P368,000 c. P400,000 d. P406,000
SELF-TEST QUIZZERS
1. Receivable from officers, employees, or affiliated companies should be reported in the statement of financial
position as
a. Current assets, if collectible within twelve months or operating cycle, whichever is longer.
b. Noncurrent assets only
c. Current assets, if collectible within twelve months
d. Offsets to capital
2. A debit balance in the allowance for doubtful account
a. Should never occur
b. Is always the result of management not providing a large enough allowance in order to manage earnings
c. May occur before the end-of-period adjustment for uncollectibles
d. May exist even after the end-of-period adjustment for uncollectibles
3. Which of the following is a generally accepted method of determining the amount of the adjustment to bad debts
expense?
a. A percentage of sales adjusted for the balance in the allowance.
b. A percentage of sales not adjusted for the balance in the allowance.
c. A percentage of accounts receivable not adjusted for the balance in the allowance.
d. An amount derived from aging accounts receivable not adjusted for the balance in the allowance

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4. On December 31, 2016 the accounts receivable control account of AAA Company had a balance of P8,200,000. An
analysis of the accounts receivable account showed the following:
Accounts known to be worthless P 100,000
Advances payments to creditors on purchased orders 400,000
Advances to affiliated companies 1,000,000
Customers’ accounts reporting credit balances arising from sales returns ( 600,000)
Interest receivable on bonds 400,000
Trade accounts receivable – unassigned 2,000,000
Subscription receivable due in 30 days 2,200,000
Trade accounts receivable – assigned
(Finance Company’s equity in assigned accounts is P500,000) 1,500,000
Trade installments receivable due 1-18 months, including
unearned finance charge of P50,000 850,000
Trade accounts receivable from officers, due currently 150,000
Trade accounts on which post-dated checks are held
(no entries were made on receipt of checks) 200,000
Total P 8,200,000
The correct balance of the trade accounts receivable on December 31, 2016 is
a. P4,700,000 b. P4,650,000 c. P4,150,000 d. P4,050,000
5. At the end of the first year of operations, December 31, 2016, AAA Inc. reported the following information:
Accounts receivable, net P 950,000
Customer accounts written-off in 2016 10,000
Bad debts expense for 2016 70,000
The balance in accounts receivable at Dec. 31, 2016 before subtracting the allowance for doubtful accounts is:
a. P960,000 b. P1,010,000 c. P1,020,000 d. P1,030,000
6. The following information is available from the records of Mirage Corp.:
Accounts receivable, January 1 P 250,000
Sales – all on credit 1,567,000
Sales returns and allowances 2,500
Allowance for bad debts, January 1 24,000
Write-offs during the year 26,000
Cash received from customers on current accounts
net of sales discount of P4,500 1,504,000
Recoveries of accounts written off in previous year 1,000
The balance of accounts receivable at December 31 is
a. P280,000 b. P281,000 c. P284,500 d. P287,000
7. An analysis and aging of AAA Corp. accounts receivables at Dec. 31, 2016 disclosed the following:
Amounts estimated to be uncollectible P 80,000
Accounts receivable 1,600,000
Allowance for doubtful accounts (per books) 125,000
The net realizable value of AAA Corp.’s receivables at December 31, 2016 is
a. P1,465,000 b. P1,520,000 c. P1,575,000 d. P1,645,000
8. AAA Company sells to wholesalers on terms of 5/15, net 30. AAA has no cash sale but 50% of customers take
advantage of the discount. AAA uses the gross method of recording sales. An analysis of trade receivables at
December 31, 2016 revealed the following:
Age Amount Collectible
0 - 15 days 15,000,000 100%
16 - 30 days 3,000,000 95%
Over 30 days 2,000,000 1,500,000
On the December 31, 2016 statement of financial position, what amount should be reported as allowance for
discounts?
a. P750,000 b. P650,000 c. P500,000 d. P375,000
9. Based on aging of the receivables at December 31, 2016, AAA Co. has determined that its collectible trade
receivables was P6,500,000. The following information pertains to AAA Company’s receivables in 2016: trade
receivables December 31, P7,000,000; allowance for uncollectible accounts January 1, P600,000; uncollectible
accounts written off, P360,000; and uncollectible accounts recovered, P40,000.
AAA Co.’s provision for bad debts for 2016 would be
a. P100,000 b. P220,000 c. P300,000 d. P420,000
10. AAA Inc. prepared an aging of its accounts receivable at December 31, 2016 and determined that the net
realizable value of the receivables at that date was P50,000. Additional information is available as follows:
Accounts receivable, December 31, 2015 P 48,000
Accounts receivable, December 31, 2016 54,000
Allowance for doubtful accounts at December 31, 2015 6,000
Accounts written off as uncollectible during 2016 5,000
AAA’s bad debt expense for the year ended, December 31, 2016 is
a. P3,000 b. P4,000 c. P5,000 d. P7,000

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11. AAA Corporation provides an allowance for its doubtful accounts receivable. At December 31, 2015, the allowance
account had a credit balance of P8,000. Each month AAA accrues bad debts expense in an amount equal to 2% of
credit sales. Total credit sales during 2016 amounted to P2,000,000. During 2016 uncollectible accounts
receivable totaling P22,000 were written off against the allowance account. An aging of accounts receivable at
December 31, 2016 indicates that an allowance of P42,000 should be provided for doubtful accounts as of the
date. Accordingly, bad debts expense previously accrued during 2016 should be increased by
a. P16,000 b. P42,000 c. P56,000 d. P62,000
12. For the year ended December 31, 2016, AAA Co. estimated its allowance for uncollectible accounts using the year-
end aging of accounts receivable. The following data were available:
Allowance for uncollectible accounts 1/1/2016 P 84,000
Provision for uncollectible accounts during 2016
(2% on credit sales of P4,000,000) 80,000
Uncollectible accounts written off 11/20/2016 92,000
Estimated uncollectible accounts per aging 12/31/2016 104,000
After year-end adjustment, the uncollectible accounts expense for 2016 should be
a. P20,000 b. P60,000 c. P104,000 d. P112,000
13. AAA Company uses the statement of financial position approach in estimating uncollectible accounts expense. The
entity prepares an adjusting entry to recognize this expense at the end of the year. During the year, AAA
Company wrote off a P50,000 receivable and made no recovery of previous write-off. After the adjusting entry for
the year, the credit balance in the allowance for doubtful accounts was P250,000 larger than it was on January 1.
The uncollectible account expense recorded for the year is
a. P50,000 b. P200,000 c. P250,000 d. P300,000
14. The following to AAA Company’s accounts receivable at December 31, 2016:
Estimated %
Days outstanding Amount Uncollectible
0 – 60 P 120,000 1%
61 – 120 90,000 2%
Over 120 100,000 6%
P 310,000
During 2016, AAA Company wrote off P7,000 in receivables and recovered P4,000 that had been written off in
prior years. AAA Company’s December 31, 2015 allowance for uncollectible accounts was P22,000. Under the
aging method, the amount of allowance for uncollectible accounts AAA Company should report at December 31,
2016 is
a. P9,000 b. P10,000 c. P13,000 d. P19,000
15. AAA Company showed the following information related to the accounts receivable in order to estimate bad debts
through the use of the aging. The credit period of the company is 30 days on the average.
Age of Receivables Amount
Under 30 days P 4,000,000
31-60 days 1,500,000
61-90 days 1,000,000
91-120 days 500,000
121-150 days 200,000
151-180 days 100,000
The company based on experience has the following percent of collectibility:
Accounts which are overdue for less than 30 days 96%
Accounts which are overdue 31 – 60 days 90%
Accounts which are overdue 61 – 90 days 75%
Accounts which are overdue 91 – 120 days 55%
Accounts which are overdue 121 – 150 days 35%
Accounts which are overdue for over 150 days 5%
What is the net realizable value of accounts receivable?
a. P6,135,000 b. P6,385,000 c. P6,860,000 d. P6,940,000

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