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ReceivablesReceivablesReceivablesReceivables

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What is ReceivablesWhat is Receivables

- Receivables are claims which are expected to be settled by receipt of money.

-Receivables are financial assets that represent a contractual right to receive cash or another financial asset from another entity

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ClassificationClassification

As to source

oTrade receivables – those arising from sale of goods or services in the normal course of business. The usual types are accounts receivable and notes receivable.

oNon-trade receivables – receivables other than trade receivables.

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ClassificationClassification

Accounts receivable are open accounts or those not supported by promissory notes. Other names of accounts receivable are customer’s accounts, trade debtors, and trade accounts receivable.

Notes receivable are those supported by formal promises to pay in the form of notes.

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ClassificationClassification

As to timing of collectionoCurrent receivables – those that are expected to be collected within twelve months from balance sheet date. Generally, trade receivables are classified as current; however, portion not collectible within twelve months from balance sheet date should be disclosed.

oNoncurrent receivables – receivables not classified as current.

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PresentationPresentation

Trade receivables and nontrade receivables which are currently collectible shall be presented on the face of the statement of financial position as one line called trade and other receivables.

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PresentationPresentation

However, the details of the total and other receivables shall be disclosed in the notes to financial statements. For instance, the note disclosure may appear as follows:

Accounts receivable 5,000,000

Allowance for doubtful accounts (200,000)

Notes receivable 1,000,000

Accrued interest on note receivable 150,000

Advances to officers and employees 100,000

Dividend receivable 250,000

Total trade and other receivables 6,300,000

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Example of nontrade Example of nontrade receivablesreceivables

o Advances to or receivables from shareholders, directors, officers or employees. If collectible in one year, such advances or receivables should be classified as current assets. Otherwise, they are classified as noncurrent assets.

oAdvances to affiliates are usually treated as long-term investments.

oAdvances to supplier for the acquisition of merchandise are current assets.

oSubscriptions receivable are current assets if collectible within one year. Otherwise, they are shown preferably as a deduction from subscribed share capital.

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Example of nontrade Example of nontrade receivablesreceivables

o Creditors’ accounts may have debit balances as a result of overpayment or returns and allowances. These are classified as current assets.

oIf the debit balances are not material, an offset may be made against the creditors’ accounts with credit balances and only the net accounts payable may be presented.

oSpecial deposits on contract bids normally are classified as other noncurrent assets because they are likely to remain outstanding for a considerable long period of time

oHowever, the deposits that are collectible currently should be classified as current assets

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Example of nontrade Example of nontrade receivablesreceivables

o Accrued income receivables such as dividend receivable, accrued rent income, accrued royalties income and accrued interest on bond investment are usual current items.

oClaims receivable such as claims against common carriers for losses or damages, claim for rebates and tax refunds, claims from insurance companies, are normally classified as current assets.

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Balance Sheet ValuationBalance Sheet Valuation

o Receivables are presented on the balance sheet at their net realizable value.