ACCOUNTS RECEIVABLE (Classroom Discussion)

Trade and Non-trade receivables

1. the records of Wee Co. on December 31, 2024 show the following:

Accounts receivable, net of P15,000 credit balance in customer accounts. 158,000

Allowance for uncollectible accounts (8,000)
Notes receivable (non-trade) due December 31, 2029 180,000
Claim for tax refund (approved by BIR and due on demand) 12,000
Advances to affiliates (payment due not yet agreed upon) 900,000
Advances to officers (due in 6 months) 180,000
Dividends receivable 220,000
Selling price of unsold goods sent out on consignment at 140% of cost 28,000
Security deposit on a long-term lease 30,000
Total 1,700,000

Requirement: compute for the correct amount of total receivables, with sub-classifications for the
following: trade receivables, non-trade receivables, current receivable and non-current receivables.

Solution:
Accounts receivable (158K + 15K) 173,000
(8,000
Allowance for uncollectible accounts
)
Total trade receivables 165,000
Claim for tax refund 12,000
Dividends receivable 220,000
Advances to officers (due in 6 months) 180,000
Total non-trade receivables 412,000
577,00
Total current receivables
0
Notes receivable (non-trade) 180,000
Advances to affiliates 900,000
Security deposit on a long-term lease 30,000
1,110,00
Total noncurrent receivables
0
1,687,00
TOTAL RECEIVABLES
0

Recognition of trade receivables

2. On December 27, 20x1 Bye-bye Duck Co. received a sale order for a credit sale of goods with
selling price of P1,600. The goods were shipped by Bye-bye Duck Co. on December 31, 20x1 and
were received by the buyer on January 2, 20x2. The related shipping costs amounted to P50. Bye-
bye Duck Co. collected the receivables on January 5, 20x2.

Requirement: provide the journal entries under each of the following shipment terms: (a) FOB
shipping point, freight collect; (b) FOB destination, freight prepaid; (c) FOB shipping point, freight
prepaid; (d) FOB destination, freight collect.

Solutions:
a. FOB shipping point, freight collect
Dec. 27, -
No entry
20x1
Dec. 31, Accounts receivable 1,600
20x1 Sales 1,600
to record sale on account
Jan. 2, 20x2 -
No entry
Jan. 5, 20x2 Cash 1,600
 Accounts receivable 1,600
to record settlement of accounts receivable

b. FOB destination, freight prepaid

Dec. 27,
20x1 No entry -

Dec. 31, Prepaid freight 50

20x1 Cash 50
to record prepayment of freight to the carrier
Jan. 2, 20x2 Accounts receivable 1,600
Sales 1,600
to record sale on account
Jan. 2, 20x2 Freight-out 50
Prepaid freight 50
to charge the prepaid freight to expense
Jan. 5, 20x2 Cash 1,600
Accounts receivable 1,600
to record settlement of accounts receivable

c. FOB shipping point, freight prepaid

Dec. 27,
20x1 No entry -

Dec. 31, Accounts receivable 1,650

20x1 Sales 1,600
Cash 50
to record sale on account and freight paid on behalf of
the buyer
Jan. 2, 20x2 -
No entry
-
Jan. 5, 20x2 Cash 1,650
Accounts receivable 1,650
to record collection of account receivable inclusive of
reimbursement for the freight paid

d. FOB destination, freight collect

Dec. 27,
20x1 No entry -

Dec. 31, -
No entry
20x1 -
Jan. 2, 20x2 Accounts receivable 1,550
Freight-out 50
Sales 1,600
to record sale on account and freight accommodated
by the buyer
Jan. 5, 20x2 Cash 1,550
Accounts receivable 1,550
to record collection of account receivable net of
reimbursement for the freight

Trade and Cash Discounts

3. Farmer Dell Co. sold goods with a list price of P100,000 on a credit terms of 10%, 3/10, n/45.

Requirement (a): traditional GAAP

Prepare the journal entries under the (1) gross method and (2) net method, respectively. Use the
following assumptions: the consideration is collected:
a. within the discount period; and
b. beyond the discount period.

Requirement (b): PFRS 15

Additional information:
In accordance with PFRS 15, Farmer Dell Co. estimates that 80% of the available cash discount will
be taken by the customer. Provide the journal entries. Assume (1) Farmer Dell Co. does not use a
sales discount account; and (2) Farmer Dell Co, uses a sales discount account. Assume further that
the estimate coincides with actual result.

Requirement (a): Traditional GAAP

Gross method Net method

1. Sale on account
Accounts receivable 90,000 Accounts receivable 87,300
Sales 90,000 Sales 87,300

(₱100,000 x 90%) (₱100,000 x 90% x 97%)

2. Collection is made within the discount period

Cash 87,300 Cash 87,300
Sales discounts (90K x 3%) 2,700 Accounts receivable 87,300
Accounts receivable 90,000

3. Collection is made beyond the discount period.

Cash 90,000 Cash 90,000
Accounts receivable 90,000 Sales discount forfeited 2,700
Accounts receivable 87,300

Requirement (b.1): PFRS 15

Invoice amount (100,000 x 90%) 90,000
Multiply by: 3%
Total available discount 2,700
Multiply by: 80%
Discount expected to be taken 2,160

Invoice amount 90,000

Less: Discount expected to be taken (2,160)
Transaction price 87,840

1. Sale on account
Accounts receivable 87,840
Revenue 87,840

2. Portion collected within the discount period

Cash (90,000 x 80% x 97%) 69,840
Accounts receivable 69,840

3. Portion collected beyond the discount period

Cash (90,000 x 20%) or (87,840 – 69,840) 18,000
Accounts receivable 18,000

Requirement (b.2): PFRS 15

1. Sale on account
Accounts receivable (100K x 90%) 90,000
 Revenue 90,000
Sales discount 2,160
Allowance for sales discount 2,160

2. Portion collected within the discount period

Cash on hand (90,000 x 80% x 97%) 69,840
Allowance for sales discount 2,160
Accounts receivable (90,000 x 80%) 72,000

3. Portion collected beyond the discount period

Cash on hand [(90K x 20%) or remaining balance] 18,000
Accounts receivable 18,000

Accounting for Bad Debts

4. The Balances of Boom Co.’s accounts receivable and allowance for bad debts at the beginning of
the period were P120,000 and P9,000, respectively. The following transactions occurred during the
period:
a. sales on account, P250,000
b. collections of sales on account, P220,000
c. the collectivity of P30,000 accounts receivable was found to be doubtful
d. P15,000 accounts receivable were deemed worthless
e. P8,000 previously written off accounts receivable was subsequently collected (not included in
the collections above)

Requirements:
a. prepare the journal entries (use the allowance method)
b. determine the ending balances of accounts receivables and allowance for bad debts using T
accounts
c. determine the carrying amount of the accounts receivable at year-end

Solution:
Requirement (a):
(a)
Accounts receivable 250,000
Sales 250,000
(b)
Cash 220,000
Accounts receivable 220,000
(c)
Bad debt expense 30,000
Allowance for doubtful accounts 30,000
(d)
Allowance for doubtful accounts 15,000
Accounts receivable 15,000
(e)
Accounts receivable 8,000
Allowance for doubtful accounts 8,000
Cash 8,000
Accounts receivable 8,000

Requirement (b):

Accounts receivable
beg. 120,000
Sales on account 250,000 220,000 Collections, excluding recoveries
15,000 Write-offs
Recovery 8,000 8,000 Collection on recovery
 135,000 end.

Allowance for bad debts

9,000 beg.
Write- Bad
off 15,000 30,000 debts

8,000 Recovery

end. 32,000

Requirement (c):

135,00
Accounts receivable, end. 0
Allowance for bad debts, (32,00
end. 0)

103,0
Carrying amount, end. 00

Estimating doubtful accounts

5. the records of Ship Co. show the following information:

Accounts receivable, Jan 1 180,000
Allowance for bad debts, Jan 1 (Cr) 12,600
Sales on account 900,000
Sales return on credit sales 90,000
Write-offs 15,800
Recoveries 2,600
Collections, excluding recoveries 781,000

Requirement:
Compute for the (1) bad debts expense, (2) ending balance of allowance for bad debts, and (3)
carrying amount of accounts receivable on December 31 under each of the following scenarios;
a. percentage of net credit sales (2%)
b. percentage of ending receivable (8%)

Solutions:
(a) Percentage of net credit sales
Allowance for bad debts
12,600 beg.
Write- 15,80
Recoveries
offs 0 2,600
16,20 (1) Bad debts [900K –
0 90K) x 2%]
(2) 15,6
end. 00

Accounts receivable
beg. 180,000
Net credit sales 810,000 15,800 Write-offs
781,000 Collections, excldg. recoveries
 193,200 end.

Accounts receivable, Dec. 31 193,200

Allowance for bad debts, Dec. 31 (15,600)
(3) Carrying amount, Dec. 31 177,600

(b) Percentage of ending receivable

Allowance for bad debts
12,600 beg.
Write-offs 15,800 2,600 Recoveries
16,056 (1) Bad debts (squeeze)
(2) end. (193.2K x 8%) 15,456

Accounts receivable, Dec. 31 193,200

Allowance for bad debts, Dec. 31 (15,456)
(3) Carrying amount, Dec. 31 177,744

The following pertains to Lakland Co.’s accounts receivable:

Days outstanding Amount % Uncollectible

0-60 190,000 1%
61-90 240,000 3%
91-120 30,000 7%
Over 120 10,000 10%
Total 470,000

The allowance for bad debts account has a beginning balance of P10,100. Lakland wrote-off P4,600
accounts and recovered P200 accounts during the period.

Requirements:
Compute for the (1) bad debt expense, (2) ending balance of allowance for bad debts, and (3)
ending carrying amount of accounts receivable.

Solution:
Required
Days outstanding Amount % uncollectible
allowance
1,9
0 – 60 190,000 1%
00
7,2
61 – 90 240,000 3%
00
2,1
91 - 120 30,000 7%
00
1,0
Over 120 10,000 10%
00
12,
Totals 470,000
200

Allowance for bad debts

10,100 beg.
Write-offs 4,600 200 Recoveries
(1) Bad debts
6,500 (squeeze)
(2) end. 12,200

Accounts receivable, Dec. 31 470,000

Allowance for bad debts, Dec. 31 (12,200)
(3) Carrying amount, Dec. 31 457,800