FAR: Receivables by Prof. Vhinson Garcia, CPA

0:01 Hello, good evening to everyone. How are you? Can you hear me? We just went to the exciting part. I look like I'm sitting down but we'll be standing up later. So let us interact for a while. Can you hear me? Just checking if

0:47 you can hear me. Okay, so again, magandang gabi sa ating lahat. Magandang Saturday ng gabi. Sabado nights, supposedly. Pero mag-aaral tayo mamaya. So let us, tingnan nga natin yung mga attendees natin dito from around the Philippines. Siguro karamihan sa inyo yung mga ni-require ng kanilang mga prof na manood. Okay, are there many here that their prof required to watch? And then, there

1:35 are also our sisters and brothers who are in their third and fourth year, who are almost graduating, right? So, who wants to give a shoutout here? There are many participants. Shoutout to Trisha Mae Gilone. How are you? Before we start, as you have watched in our video, We have Rio apps, right? Our Rio apps are the most revolutionary application of the information system. We saw

2:24 online shopping, ordering food, they have their own app. When we study accounting, we also have our own app. We don't want to be part of the revolution of learning accounting subjects. So here in Rio, we have our own apps. And these apps are really full of contents. There are video lectures, problem solving, questions that you can practice, assessments that you can practice once you finish your concepts. It's good when it's offline. First, we have different paces in

3:15 our studies. There are fast, you know, there are obstacles and it takes time to study. So with the apps, we can control our time in studying. If you feel like nothing is coming into your mind, you just pause and then rest. So that's the advantage of our offline apps, I mean our pre-recorded apps. And speaking of offline, If we have a weak internet connection, we can download videos. Those videos are in the app. It's not going to appear in the app. It's still in the app. Another

4:00 advantage when you have apps is to organize the lectures. Just click the subject you want to study, the topic, then you will see immediately what you want to study. For those who are asking, we have received a lot of queries if we will have a physical review this coming October 2022. Sadly, we don't have one. But our enrollment is ongoing for pure online classes. Take note, If you want, you can interact with the reviewer. We also have live lectures every week. So

4:46 every weekend, we have live lectures. So it's ongoing. See you on November 2022. Because starting May 2023, that's our physical, I mean, face-to-face review. So there. How are we? From different places, I can see the comments. It's really different. If you look at online learning, just look at the bright side. We know that it's a bit draining to study online because you're just at home. But as you can see, you can study anywhere, you can listen to lectures even if you're in

5:32 Mindanao or Visayas, anywhere in the country, even outside the country you can study. So that's a good thing with the online learning. in a starting May 2023 batch, we will supplement it with face-to-face and up. So just wait for our offering for the May 2023. And one more thing, I'm sure students will like this free access okay for free

6:17 ayan okay so Where are our participants? 18,000 registered. Where are you? I'm expecting 18,000 viewers. Where are our 18,000 registrants? Let's look at the audience. We're here in Kings College. We're here from University of Southern Mindanao. um the university of saint louis to get around from northern

7:07 park with latin southern part so because of the digitalization so instead now negative about the online learning so so anywhere anywhere you can access everything so online setup and all other webinars in attendance okay so you're lucky um words before time and start so i think let's start our 610 let us just wait for for the other participants okay Shout out to my alma mater, Wesleyan University

7:55 Philippines. How are you doing? I think my students are here last time. How are you? Let's start with 6:10. Hello to Central Mindanao University, Westmead International School. Good evening to all of you. University of Northern Philippines from Rizal Technological University from Central Luzon State University and so

8:45 i hope you are all um doing good so i sana matapos na yung mga variants na yan so that we can go back to school and have face to face set up okay para naman um mas ganahan tayo mag-aral ng accounting okay ayan so i think we can start na ayan so asan yung ating mga viewers okay ayan so

9:36 okay so okay so Okay, yeah. Let's sit down. And we will be starting our whiteboard discussion. So, before we start, our concept discussion is whiteboard. We will use whiteboard for the problem solving so you can

10:24 see the problem on your side. I will share screen later. Conceptual discussion, whiteboard, problem solving, I will share screen later. Okay, so are we ready? Are we ready to study receivables? Are we ready? Are we ready? Okay, so I think we are now ready. So, receivables. What do we think when we say the word receivables? Do you remember the time when you first studied accounting? I think when

11:13 you were still in ABM. And you were having a snack with your classmates. Your classmate left his wallet in his bag in your room. He borrowed money from you to buy your snack. You will say, "You will pay me for that. It's still receivable from you." That's how you apply accounting before, when accounting is still fun and easy. Given that, we can say that when we say receivables, this is the right to receive cash. receivables so it is a right to

11:58 receive cash okay so in a nutshell so what are the sources of our receivables okay and what are the sources of our receivables because receivables in general and dominion deba so the lauayan okay we can classify your receivables not independent so pinanggagalingan amounts na yan so meron tayong tinatawag na okay trade receivables okay melton to the trade receivables trade receivables and then meron din tayong tinatawag na of course to the end trade and yan okay non-trade receivables yeah non-trade Receivables.

12:44 So, yan yung two major classifications ng ating receivables. So, pag sinabi ba nating trade receivables, ano to? Pag sinabing trade receivables, eto yung palatandaan mo dyan. Okay? Related or directly related, sabihin natin directly related. Okay? Lagyan natin ng word na directly. Okay? Directly related directly related to primary operations. Okay? To primary operations. operations or you can say primary revenue generating activity so this is the legit receivable you got receivable because

13:29 of your operations so what are the examples of our trade receivables of course your favorite is accounts receivable okay the receivable conca and the band band and goods or the ventricle service and you own counterparty more your customer more he'd be panic by the back to your journey at the transaction of rendered service on account the back accounts receivable the back or sold goods on account accounts receivable so you're okay at the young pinaka common type of trade receivable.

14:14 What else? It also includes what we call notes receivable. So notes receivable. take note that the notes receivable should be related to the sale of goods or the rendering of services because if the notes receivable is related to the sale of land or building, that is not trade. That is non-trade. So, if the notes are receivable, if it is silent, usually the trade receivable is consideration mo dyan. Ano yung pinagkaiba ng notes tsaka accounts receivable? Diba parehas naman silang receivable and parehas naman silang directly related sa primary operations ng isang entity? Ano yung

15:01 pinagkaiba nila? Okay? So ganito isipin mo. Kapag accounts receivable, If you think of accounts receivable, think of MU. Mutual Understanding. What does mutual understanding mean? You're not the same, but if you're together, you're like one. Because of course, mutual understanding business, it will sell to the customers because they have a mutual understanding that even if they don't say it, of course, the customer will have to pay

15:49 later on. That's how it is. So, if it's account receivable, mutual understanding. That's hard. How about notes receivable? Here it is. These are the safe ones. Under notes receivable, meron talagang formal document merong formal document na tinatawag nating promissory note nakalagay sa promissory note kung ano yung dapat gawin kung kailan dapat gawin or magkano dapat yung dapat ibayad or kailan dapat bayaran so nakalagay dyan nakaspecify so formal type of receivable itong note receivable so eto yung mga for those who have labels. Accounts are

16:35 receivable, just the MU/MU. Notes are receivable, formal. You have a label. That's their distinction. This is mutual understanding between the entity and its customers. This is formal. But what usually happens here, setting aside the love life, this is what happens here. By default, okay by default accounts receivable yan kapag lang merong special arrangement and then the notes will be received. Or if there's an account receivable that you can't pay for a long time, it can be a notes receivable. By default, you own accounts receivable. So the MU is default. Yeah, that's

17:22 why there's a lot of heartbroken people now. Don't just fit in the MU. You should have a label. Be like notes receivable. wag account receivable okay so ano pa okay ano pa to some extent loans receivable loans receivable trade receivable yan para saan okay or sa financial statements ng anong entity? Sa mga financial institutions. Sa mga financial institutions, yung loans receivable na yan. So yan yung parang trade receivable nila. Pero in actual practice, yung pag sinabi mong trade receivable, ano siya? Applicable siya sa mga

18:09 or they are selling goods or they are rendering services. But in banks, they call it different. They call it loans receivable. But for the purposes of our discussion, it is considered as trade receivable for banks and other financial institutions. Because that is their business. And you will notice, it depends on the business of the entity on what is available. to consider their trade receivables. This is a bank, loans receivable. But if it's not a bank, for example, it's a manufacturing company, it has loan receivables, that's not a trade. Because what is the usual business or primary revenue generating activity of a

18:55 manufacturing company? Manufacture goods and sell the goods. okay so non-trade receivables Yan na yung catch-all. Catch-all classification. So all others yan. Okay? So by the way, loans receivable, interest receivable, okay? Part siya ng trade receivable for the banks. Okay? Include mo dito yung interest receivable. Okay? Accrued interest receivable. Ayan. Okay? So all others na. So ano ba yung mga examples ng non-trade? So sandamakmak yan. Okay? Sandamakmak yan. So meron dito advances. Okay? okay advances

19:42 to employees okay advances to employees okay to officers yeah okay subscription receivable subscription receivable shares that subscribers are not paying for, advances to affiliates, these are the entities that are your allies, advances to affiliates. So for our younger participants, affiliates are the related parties. You can study that in higher accounting subjects. So what else? Claims against, claims against insurer,

20:38 advances to suppliers, okay and your advanced payments to suppliers okay you don't trade it because you can't really advance it's not really your primary operations so it's not trade receivable the advances to suppliers okay so why is it important to take note this is a non-exhaustive list so there are many more right there are many more that can be added here this is the most common examples of non-trade receivables. So why do we classify our receivables into trade and non-trade receivables? Because in the financial statements,

21:24 in the academe, we have a line item called trade and other receivables. Meron tayong line item na ganyan. Trade and other receivables. So ano yung nandyan? Ano yung inclusions nyan? Magagamit natin itong classifications ito. So una, of course, all trade receivables. Lahat ng trade receivables isasama mo dyan. Ano pa? Current, pag-usapan natin yung current, non-trade receivables. So, ibig sabihin pala yung mga non-current na non-trade receivables hindi mo siya isasama dito. So, paano

22:14 ba natin malalaman kung current or non-current? Kapag current, yung maturity date niya from the reporting date is less than or equal to 12 months. okay the non-current of course more than 12 months okay non-current more than 12 months maturity date after the reporting date the reporting date until its maturity date okay so current and non-current so usually you might have current data that can classify more usually Okay, it depends. So you can't assume that. Okay,

22:59 it depends. Usually, let's put it here. Usually, this is current. It depends. Usually, this is non-current. Non-current is advances to affiliates. Okay, this is usually current. And then usually, this is current. There. Okay, so like that. So these, usually, they can be combined with these current ones will be included in trade and other receivables. yeah and you classifications nothing accounts receivables in general so for the rest of our discussions different types of receivables actually accounts

23:46 receivable notes receivable and much later on your own loans receivable nothing okay so let us now go to the accounts receivable. We will talk about accounts receivable. Okay? So,

24:31 accounts receivable. So as we said earlier, if we say accounts receivable, it's informal. Actually, the only support of accounts receivable is invoice or billing statement. So that's what will be your account receivable support. Like an invoice, you're already getting a fine because you're not paying yet. So there's no formal document that the customer promises to pay. okay so under a mutual understanding it accounts receivable okay so pano ba natin okay ano ba yung mga unang tanong na dapat nating malaman regarding accounts receivable ano ba yung initial measurement

25:21 nya okay ano ba initial measurement yan initial measurement yan ah okay It should be at face amount. At face amount is the initial measurement. There's a saying that net method versus gross method. In the net method, what will happen is it will record net of cash discount. This is gross method. According to the accounting standards, if the sales discount is immaterial, If the discount is just a material, then you can measure it at its face amount. It's hard to apply the net method. But we haven't really talked about those two. We'll talk about more

26:11 of them today. I mentioned them because For the sake of practicality, it's more practical to use it when it comes to face amount. Because sales discounts are just immaterial in general. For practicality purposes, it's better to use it as a face amount. How about its subsequent measurement? How about our subsequent measurement of accounts receivable? so at the end of each report or as of each reporting period okay every december 31 measurement for john i net realizable value okay net realizable value yan yeah okay

26:58 so another young net realizable value na natal okay pag sinabi mong net realizable value eto you own in expect more number receive more cash from the accounts receivable okay at the amount of cash number is net amount of cash from the receivable sir but back at my sake a bug marijuana one million AR or accounts receivable the bad about my colleague a lot young dancers no Hindi mama collect young Meron at Meron foreign talagang Hindi magbaba yet deba Those you see in the post FB, the convocant, the one who

27:44 has debt, he's still angry. There are those who don't pay their debt. It's also applicable in accounting, the real-life scenario where others don't pay their debt. It also has to do with accounting. We'll talk about that later. We'll talk about the details of this net realizable value. I mentioned it because we have initial measurement and subsequent measurement. The next thing we'll talk about is how do you determine the ending balance of your accounts receivable? How do we know the

28:30 ending balance? Actually, we can use It depends on you, but I prefer T-Account because I will show you the support through journal entries. We have here T-Account. This is your favorite from the first time you learned this. This is the T-Account of Accounts Receivable. This is the first time you learned this. You are still enjoying T-Account. This is the debit. This is the credit. So how will you know the ending balance using the account? Imagine first the transactions that are affected by your accounts receivable balance. Before we look at the transactions,

29:15 put the beginning balance here on the debit side. Basic accounting days, the beginning balance, you will put it on the normal balance side. Since debit is the normal balance of your accounts receivable, you will put the beginning balance on the debit side. What are the transactions that affect our accounts receivable? Let's start with cash sales. Let's see if it will affect accounts receivable. Imagine there's a journal entry. If there's cash sales, you will debit cash and credit sales. so by looking for journal entry mo di ba wala siyang effect

30:03 sa accounts receivable balance wala siyang effect di ba asan yung accounts receivable dyan wala so yung cash sales pala walang effect doon sa aking ar balance kapag may nakita kang cash sales it's not affected by my accounts receivable balance. What else? If there are cash sales, there are credit sales. How do you enter credit sales? You debit AR, you credit sales. So there's a debit. you are debiting your AR. So, you will be debiting your credit sales. Because when you are debiting your credit sales, you will be adding your AR. So,

30:49 you are debiting it. So, we are debiting it here. What else? What if we have a collection? Collection of So collections from credit sales Okay? Your AR is credited. This is because your AR is credited. And there are times when you are collecting a net of sales discount.

31:34 If that happens, your entry is debit cash, you are debited a sales discount, and you are credited with AR. you should also credit your own sales discounts. Take note, this is the amount of cash that you received. This is the sales discount. For example, let's assign this number. For example, 100 is the accounts receivable that you collected. Your sales discount is 5 pesos. The amount of cash you collected is 95. If you only put this amount, only 95, the 5 pesos will be floating because the total credit you should have for your accounts receivable is

32:20 the total of cash and sales discount. So don't forget the sales discount component. You saw the receivables collected or collections from receivable. Ignore the sales discount because you said you can't receive cash or you didn't receive in cash the sales discount. Actually, the sales allowance sales allowance sales allowance the debits are you sales allowance reduction

33:07 okay at the cabal sansa pressure no initial billing so customer and bawa see customer uh you deliver him or the mistake you know business relationship actually sales return very similar to sales allowance but in sales return you have physical transfer of i mean you have goods that you have physical flow of goods you have goods that you have

33:57 no defective goods here in sales allowance you have no goods that you have no sales return This is the product that you have invested and the price will be reduced or the customer will be able to pay you back. So that's the difference. The physical flow of goods. There's a physical flow of goods in your sales return. So how will they be affected in our ART account? How will they be affected in our ART account? So it depends. arising from credit sales or arising from unpaid credit sales okay credit mo sila dito credit mo sila dito so debit ka ng

34:43 i credit ka ng sales allowance and then sales return yan okay sales return take note na dapat arising from credit sales lang itong mga to okay or something nothing unpaid credit sales back at kasi kapag merong sales allowance okay merong sales allowance or sales return that you've refunded. It's possible that the customer already paid the amount you sold to him and later on, he discovered that it was defective. So instead of a reduction in AR, you'll just refund it. He'll pay you back. If he pays you back, you'll reduce your cash. So

35:34 there's no account accounts receivable. Wala ng accounts receivable kapag nirefund yung allowance or return. So kaya kailangan arising from credit sales itong sales allowance and sales return mo. Pero pag silent naman ng problem, assume mo na galing siya ng credit sales. Yung dalawa na to. So, what else? These are the major ones. Then, we will include those who do not really pay their debts at all. There are those who do not really pay their debts, you are not able to pay it, for years you have not been able to pay it, you can pay it but you do not want to pay it. That is

36:19 where the write-off comes in or what we call worthless receivables so kapag merong write-off ano ba yung entry mo dyan so pag-usapan din natin mamaya ito ha medyo isa segue ko lang para kompleto yung aking t-account kapag merong write-off ayaw mo na syang maging receivable kung hindi mo na syang marereceive so bakit pa sya nakarecord as receivable tatanggalin mo na sya sa libro mo You will reduce your accounts receivable and we will talk about this later. You will debit your allowance for bad debts. We will come back to this later. What

37:05 you will see here is the credit accounts receivable if you cannot pay off the customer or the debtor. Since it is credited, you will credit the write-off. Okay? That's how it is. Okay, then, in relation to the bad debts again, we'll come back to this later, we have what we call "key recoveries." Because you have the right of before. You thought you can't collect anymore. but the customer suddenly went bankrupt and wanted to reduce his debts,

37:51 he suddenly paid you unexpectedly. In this case, you actually have two entries. We'll talk about that later. You have two entries. You have an AR debit, because you removed it from your records because you thought it would not pay anymore. Now, it paid. So, restore your receivable first and then credit the allowance for bad debts. For bad debts. And then credit the I mean the entry and

38:37 then the second entry record cash received and the reduction in your AR. So as you can see, you can edit it and then you can edit your AR. So for T-account purposes, both are here. Question, there are other problems, I saw other problems, like recoveries. is it not included in the collection from credit sales or collection from customers? Is it not included here? So, the problem should be clear if the recoveries are included in the collection from customers. It should be clear. If your recoveries

39:23 are included here, this should be gone. This side is gone because it's already included there. But if not, okay so notes receivable national company and from being

40:08 a simple receivable an informal receivable okay received as payment of your AR. It's here. It's here in the account receivable. Actually, it has a counterpart. It has a counterpart here. The notes receivable that became ineffective. So it's like Later, we'll talk about that. The notes receivable that was dishonored or not paid by the maker of the notes receivable. You can

40:56 put it here. It will become AR. But it's already too detailed. These are the usual transactions that can affect our AR balance. How is that now, sir? Where is the ending balance? Where is the ending balance of the accounts receivable? Actually, it's here. Squeeze it here. So this is your ending balance. Here, it fits. Here is your ending balance. Squeeze that amount. Squeeze amount. So there. You can follow that. But they do something else. Beginning balance. They add these. tapos ima minus nila tong mga to ganon to arrive at

41:46 ending balance basta tandaan mo kapag ang tinatanong sa AR squeeze amount mo yung ending balance dun sa credit side okay so hindi hindi ibig sabihin credit yung ending balance mo ibig sabihin mas malaki yung debits mo okay mas malaki debit side mo compared doon sa credit side mo okay so ganon actually you will first get the total. This is the step. Since you are looking for the ones on the credit side, you should first total these ones. You should total these ones on the credit side equal to the total of your debit here. First, you should total these ones on the debit side. You should total

42:33 these here. The total here should be equal to this. the account equal debits and credits okay tapas yung squeeze amount The total here, minus all of these, all of these, the remaining is your ending balance. You can use this. But it depends on you if you have other uses. But I really use this. Actually, you can also use this in cash flows. It's a different topic. Statement of cash flows. But I really use this. So there. so let us now apply yung natutunan natin sa

43:18 isang problem okay so kukulang muna si sir and this is share screen ko sa inyo ang ating unang problem for the day okay ayan okay ayan so naroon tayo dito granada company okay so i ask ka lang on my side okay so i

44:04 decided na we have intermission per concept and per problems. So let's apply what we learned earlier. I think you can't read it. I'll just show you my face. You can't read it. So determine the ending balance of accounts receivable. I'll just look at our live. if she can reflect just to make sure that you can see

44:49 it because you can't see it okay there it is confirmed okay so let us now start by making a t account okay let's make a t account the account of accounts receivable there accounts receivable let's make a t account and let's zoom in so it's big okay so the requirement determine the ending balance

45:38 of accounts receivable okay so if you see this problem, panic, no, don't panic if you see this problem don't panic, what you should do is what you learned when you were doing a review, apply it slowly, okay? one by one, look at every information given okay okay 650 000 okay 650 000.

46:24 okay next from the top credit sales 210 120 and 60. and within 10 days but after 10 days 1% is the discount that the customer will receive. N60 means that no matter what, after 60 days, the customer will be able to pay the receivable. That's the meaning of it. Again, 2% discount if paid within 10 days. 1% discount if paid

47:14 from 11th day to 20th day. okay but regardless regardless regardless of the discount within 60 days okay maximum 60 days so since at the credit sales again no effect next accounts proved to be worthless so you write off credit side Promissory notes received as payment of accounts from being accounts receivable, it becomes notes

48:03 receivable. So, what is that? Credit. Your accounts receivable will be reduced. Again, this is your debit of notes receivable, credit of accounts receivable. Next, sales allowance allowed on credit sales. so unpaid ito so this is credit musha 60 000 i mean credit musha okay this is at the account as sixty thousand next refunds made to cash okay or your customers now paid na one hundred thousand so take note refund ito wala siyang effect to your accounts receivable balance ignore mo siya i ignore

48:50 mo itong 100,000 kasi cash refund siya walang effect to our accounts receivable balance next sales returns from credit sales 80,000 so this arise this arise from credit sales so 80,000 credit Next, cash received from customers paying within 10 days, 2.45 million. So in this case, cash collections mo 2.45 million. Take note, amount of cash yan. Amount of cash, ganit yung entry mo dyan collectively, diba? Debit ka ng cash, 2.45 million. 2.45 million

49:37 credit canang accounts receivable okay credit can account receivable uh uh sales discount more but can you total receivable related to this sabi john binayaran within 10 days so na subject is a two percent discount so you know receive one two point forty five million okay actually net of two percent discount na siya i divide musha by ninety eight percent para

50:24 makuha may one hundred percent so in this case one hundred percent mo is 2.5 million that's the amount of your accounts receivable and your difference 50 000 that's the sales discount so since you include here cash 2.45 million 50 000 sales discount you credit here like that okay That's what you will do. So, don't forget to pay the sales discount at any time. But be careful with the wording. What I mentioned here is the amount of cash received. This is the cash that was received. There is a wording that says "accounts collected." 2.45 million ar

51:11 collected 2.45 million union amount of ar and a collect but indeed indicia equal do in sa cash receive so ingat ka kapag snabi dito na accounts collected you nakagad yung ibabawas mo pero cash received diba cash received kasi iba sa amount of accounts collected yan But usually, it's all cash received so you can avoid this trick. Don't forget the sales discount of 50,000 related to the 2.45 million cash that you collected from customers who paid within 10 days. okay subjected not as a two

51:57 percent discount so so cash received from customers paying beyond 10 days but within 15 days beyond 10 days within but within 15 days so imagine 20 days inside so within 20 days okay within 20 days so subjected just a one percent discount so similar to this entry okay similar to this entry ang nareceive mo na cash one four eighty five okay again 99 percent 99 percent 99 percent divide motion 99 percent 100 percent um amount receivable and

52:43 a collector 1.5 million so on difference nila 150 000 15 000 rather sales discount then yeah okay so after you 145 1485 and then at the payone sales discount So what can you observe here? You should observe that if you add these two, 2.45 million and 50 million, it equals to 2.5 million AR collected. That's the total you have credited to your AR. It's the same with 1,485,000 and 15,000. If you total that, 1.5 million is equal to the accounts receivable you

53:31 have credited. You can do that. You can total 2.5 million and this one is 1.5 million. It's possible. I'm showing you that you shouldn't forget the sales discount. okay next cash received from customers paying beyond 15 days 495 000 uh beyond 20 days rather okay doing nothing beyond 20 days okay we're not think beyond 20 days yeah so in this case beyond 20 days he didn't he didn't just subject to this count so it's not a good you're gonna meet him off four hundred ninety five thousand

54:21 well I can I go gross up John okay well I cannot a party go gross up John next recoveries from accounts written off at all can clarify problem not yet included from the cash receipts above amounting to 19 000. so the basabi natin recoveries Okay? On the debit side and also on the credit side. Take note, they haven't included the 19,000 in this yet. So, it has its own credit entry here. There. Okay? So, we've counted the relevant amounts. So, let's get the total debits. Your total debits, okay?

55:07 This is your total debits, right? Let's first count the total debits. 5,669,000. This should also be your total credits. How much should be your ending receivable to make them total? Do this. Reduce this to the total of these. The ones above it. The ones in our credit entry. Like that. So, 665,000 is our ending AR balance. Or you can do this. There's a suggestion that you can do this. You can

55:56 do this actually. Instead of doing total, do this. Do this. Total your debits and credits first. Total your debits and credits first. What's their difference? The total credits should be 5669. What should you add to the credit side to make it 5,669,000? 665,000. There. So, there are two ways of computing. But you can still get the same 665,000. Okay? So, I hope it is clear.

56:45 There. Okay. Let's try it. sana okay to ha i mean sana na nasusundan natin to okay so i think we can now go to our next topic okay at the favorite man madami say no i suppose okay at the favorite madami saying no so let's just change the camera and then stop share i will reshare it later okay don't worry i will reshare it later so this is the whiteboard let's remove this Let's go back to the net realizable value. Let's go

57:31 back to the net realizable value. How can we determine the net realizable value of our accounts receivable? It's like this. We have what we call accounts receivable gross. okay so ito talaga yung face amount noong accounts receivable mo okay wala kang binabawas dyan or whatsoever okay eto yung na-determine natin kanina sa t account okay eto yung na-determine natin sa t account kanina yung gross amount nya okay so

58:19 yan eto yung na-determine natin na ending balance ha yung kanina sa t account less so first allowance, allowance to actually okay allowance for bad debts actually we will focus on this later okay allowance for okay allowance for sales discounts okay allowance for sales returns okay and allowance for freight allowance for freight as you can see here these amounts you will deduct them all from your accounts

59:08 receivable gross okay because these these let's put here nrv of ar These will reduce the amount you will receive from your receivable. First, we already mentioned that these are the non-paying customers. the ones who are borrowing from the store and are not paying. They just list the items and it takes a long time for them to pay for the items they listed. So this is it. Allowance for sales discount. There are receivables that at the end of or as of December 31, there's a possibility of paying within the discount period. There are receivables like that. As of December 31, there's a chance that if these

59:59 customers pay, they'll be granted a sales discount. So, that's a reduction in what you'll receive from your customers. So, estimate that. Okay? The same goes for sales returns. Why, sir, sales returns and sales discounts, why are you recognizing allowance here? Why are you estimating that? Because you need to recognize sales returns and sales discounts immediately because of what principle? We have what we call matching. Oh, it's matching. What is matching? matching principle. So, under this principle, the expenses or reduction from amount of revenue should be recognized during the same period

1:00:45 that you recognized that revenue. What is the related revenue here? The sales revenue, right? you recognized that during the year sales revenue so all the cost all the reduction from that sales revenue you need to reduce now okay you need to recognize now because they are related to that revenue that's the matching principle that's why the warranty expense or those who have already paid the warranty expense you need to expense it immediately during the period of sale like that right so you match it similarly

1:01:30 Usually, when it comes to FOB destination, the entity as the seller should shoulder the freight. We will focus on allowance for bad debts. That's what we will talk about today. okay so we will not talk about the direct write-off method because it is wrong it is not in line with our accounting standards so let's talk about

1:02:19 the direct write-off method But I will not illustrate this. We have the direct write-off method and we have the allowance method. Under direct write-off method, the recognition of bad debts expense when there is actual write-off. So kapag meron lang actual worthlessness, kapag meron lang actual write-off, dun ka lang mag-recognize ng bad debt expense. So passive siya. Kung walang write-off, walang worthless, wala

1:03:08 kang i-recognize sa bad debt expense. And speaking of bad debt expense, wala din itong no allowance maintained. That's why there's no allowance for the direct write-off method. So, that's wrong. It's not in line with the accounting standards. What about the allowance method? Estimate bad debts or let's put it here, just recognize this. okay even though okay there

1:03:53 is no there's no actual right off So it's like, this one is really getting ready. This direct write-off method is just passive. It's just waiting for someone to not pay to write-off. To recognize the badness expense here. allowance method okay in anticipate nanya na merong hindi magbabayad so yung yung in anticipate na na hindi magbabayad i-re-recognize na niya as budget expense okay kahit walang actual write-off okay kahit walang actual write-off okay so ganyan diba so

1:04:45 because it is called allowance method of course there is an allowance that is maintained there okay the allowance for bad debts so we will focus here on the allowance method okay so under allowance method we have a t-account that we can use okay this is what we call allowance for bad debts there allowance for bad debts not the account natin. So take note itong allowance for bad debts account, kontra asset yan. Nakita nyo kanina dun sa pag-compete natin ng NRV ng receivable. Binabawas natin yan. Kasi kontra asset account

1:05:31 yan. Credit balance yung meron yan. Credit balance. Credit balance yung balance niyan. Credit balance. So dahil credit yan, the beginning balance is on credit. Right? Right? In the account. The beginning balance is on the credit side because the normal balance is on credit because it's a contra-asset account. Okay? Remember that. Don't forget that. Okay? There. So what are the transactions affecting the allowance for bad debts? Okay? So first, I already showed you the write-off. Okay? So write-off. These are the receivables that will not be paid. Based on your reasonable efforts,

1:06:21 you determined that it will not be paid. So your entry is debited by allowance and you are credited with AR. That's why it's debited. You are debited allowance. What else? There are those that you unexpectedly write off before, you collected again this year. What are your entries there? First, you have a debit of AR, credit of allowance. So basically, you just reverse this. This is the write-off, this is the recovery. You just reverse the accounts. So you have here Credit. You have

1:07:08 credit here for the recoveries. It means that the allowance account is being added to the recoveries. The write-off is being reduced. Okay? Your entries were like that earlier. So, there. What else? This is the biggest amount there. We have bad debts expense. This is what I call anticipation. This is what I call anticipation that an entity recognizes a bad debt expense even without actual write-off. So if there's actual write-off, what will you notice? It doesn't recognize a bad debt expense. It doesn't recognize

1:07:54 a bad debt expense if there's actual write-off because this is it. So again, you can do this. and it to your squeeze amount but they don't ending balance more okay ending balance squeeze okay okay squeeze yeah okay or yeah so it depends actually hindi lang hindi yan all the time is quiz mo so it depends no maya pag usapan natin it depends okay so for the meantime transactions and a pectus allowance for budgets you mga credits in increase na you own your allowance account. The ones who have debits, they decrease your allowance account. Okay? That's

1:08:40 it. That's their effect. That's the effect of these transactions. This is what we will focus on. We said that we estimate this. How do we estimate this? How do we estimate this bad debts expense? This is where the students get confused. When I was in my first year of college, I was also confused. I hope that when I teach you, you won't get confused. Let's go to estimating bad debts. The estimation

1:09:26 methods. Estimation methods. There. Okay? We're now on the estimation method. So, we have three. Okay? We have three ways on how to determine your own budget expense and allowance for budgets. Okay? So, we have, first, percentage of sales. Okay? Percentage of sales. Okay? We have percentage... of ar okay percentage of ar aging method okay aging method so and what are their differences aside from

1:10:13 what we call percentage of sales percentage of ar and aging method so first the basis okay what is our basis the percentage of sales so usually credit sales credit sales yan okay usually credit sales yan yan percentage of ar of course ar ending balance okay and similarly ar ending balance then aging variation yan okay so ganyan eto yung basis mo yan okay ganyan so later on, I'll be

1:11:03 leading you on the percentage of AR and aging method, it's similar. Those two look very similar. The only difference is the determination of allowance for bad deaths. That's the difference. So let's go to the percentage of AR. Basis, okay basis multiply by percentage any basis more ar endings multiply more than relevant percentage so given a problem yeah okay due to aging summation okay summation of basis okay times

1:11:49 your percentage back at summation sir Remember, under the aging method, you will segregate your receivable balance based on how long they are outstanding. You segregate them, normally less than one month, one to two months. uh two to three months three to four months you might get on my gonna age nila so you know age may corresponding percentage okay now in expect more than human So later you will see that as the age increases, as your accounts are outstandingly receivable, the probability of not being

1:12:36 able to collect it increases. The percentage of uncollectable will increase. So that is the difference between the percentage of AR. You will use a lot of percentage here. Here, only one. Okay? That's it. So, if it's percentage of sales, it's based on the account. So, you need to use the T-account to determine the ending balance. So, the percentage of sales is based on the T-account. How about if the question is about the bad debt expense? Take note, allowance for bad debts

1:13:21 is different. This is the contra-asset account. This is the bad debt expense. This is your expense account. They are different. Remember, this is the allowance, this is the contra-asset account. This is the bad debt expense, this is the expense account. Income statement account, balance sheet account. It's different. So, percentage of sales, basis, okay, basis multiplied by percentage. What is your basis? Credit sales. Credit sales multiplied by the relevant percentage. Okay, this is the squeeze amount. Squeeze amount on the account. Actually, it's the same with

1:14:08 the aging method. Squeeze amount on the account. We will use the t-account here. okay so again so if you multiply it by percentage of sales you will get income statement account also but that's expense account which is

1:14:56 a balance sheet account so kapag multiply mo yung AR ng percentage ang makukuha mo yung allowance for bad debts account a balance sheet account ganon diba it makes sense naman kasi yung basis mo okay yung basis mo ito income statement If you multiply by percentage, that's your bad debt expense. If percentage of sales. If percentage of AR, your basis is balance sheet account, what you'll get is allowance for doubtful accounts or allowance for bad debts account, balance sheet account. Right? It's logical. Based on that, where does

1:15:42 each method focus? The percentage of sales focuses on matching. Matching of expense to related sales. While the amount of credit sales will increase, so will your bad debt expense. So, it will properly match your income account and expense account. Since your basis is AR, it focuses on NRV of AR. So, sir, is there a best in all scenarios?

1:16:29 No. There's no best in all scenarios. It depends on the entity on how it estimates. So, all of them are acceptable. These are the advantages. So, it's like this when the percentage of sales happens. I multiply the basis. percentage, meron akong bad debt expense. Ito yung una akong makukuha. Okay? Kapag pala percentage of AR, ang una akong makakompute ay allowance for bad debts. Similar dun sa aging method. Ganon. Ganon sila nagkakaiba. Kapag percentage of sales, you multiply me basis okay the percentage okay the percentage okay the percentage okay the percentage okay the percentage okay the

1:17:35 percentage okay the percentage okay the percentage okay the percentage okay the the percentage okay the the the they will result in different amounts of allowance and budget expense for each estimation method. So that's it. Those are our different estimation methods. Since we know the different estimation methods, let us now answer our sample problem here. Okay, let's answer the sample problem. Okay, I will share my screen again. Okay, there. Are you still there? Take note until we reach the

1:18:21 loan receivable. So, I feel like we've reached almost four hours. Okay, so there. I'm just confirming on the page if I can see my Excel file. Okay, so masarap mag-aral ng accounting habang nagdi-dinner. So I hope nagdi-dinner kayo para pag-down hindi kayo magutom habang nag-aaral ha. So I hope nagdi-dinner kayo ha. Okay lang yan, di ko

1:19:07 naman kayo nakikita. Ayan, sakita na pala dito yung excel file. So check ko lang dun sa page natin para lang sure. Ayan, not ganun. Oops. Okay, ayan. So let us now continue. yeah so different scenarios actually so under each of the following independent scenarios compute for the bad debt expense and the allowance for bad debts after the adjustment okay so scenario one but this expense is estimated at 3.5 percent of credit sales scenario number two

1:19:52 allowance for bad debts is five percent of ar balance uh scenario three at the aging method allowance for bad debts is based on the estimated percentage for age bracket as follows okay so scenario number one okay so scenario number one based on credit sales okay so basay nati problem on january 1 2023 tulips company reported a balance in its allowance for bad debts amounting to 100 000. for the current year accounts accounts written off and recoveries amounted to

1:20:42 75 000 and 15 000 respectively In addition, the company reported net credit sales of 5 million while ending receivables amounted to 2.5 million which can be aged as follows. So this is the aging of your AR. So let's try it. 1,750 plus 500 plus 250. Okay. So this is the total. 2.5 million. Okay. So let's go to scenario 1. Again, let's do the account to see. Okay. yung mga pangyayari yan so this is allowance for bad debts again at the counter asset account mo okay at the counter asset account mo dyan yan so beginning balance

1:21:29 mo is 100 000 okay at all 100 000 beginning balance mo iligay mo siya doon sa credit side okay credit side again normal balance is credit next for the current year written off is 75 000 deba like it was a debit side 75 000 recoveries 15 000 okay so 15 000 ayan okay tapos yung bad debts expense dow i estimated at 3.5 percent of credit sales so at the young bad that's expense not as a credit side panama siya maka compute net credit sales 5 million okay

1:22:14 multiply by okay multiply by any percentage 3.5 percent multiplied by 3.5 percent so this is 175 000. expense amount okay Then, you have a T-account with a net credit balance of...

1:23:03 so meron kang net credit balance na 215 000 so eto yung allowance for bad debts ending mo okay eto yung ending allowance for budgets mo yung 215 000. so yung nrv mo noong ar diba eto yung ar gross This is the allowance for bad debts. That's 2.5 million. Your AR gross is 2.5 million. This is the ending allowance for bad debts. You'll deduct that. This is the carrying amount of your AR. Carrying amount of your AR is 2.5 million less 215,000. So,

1:23:48 2,285,000 is the carrying amount of your AR. okay again percentage of credit sales but that's expense money when i'm a compute if a possible account not in for allowance for bad debts but i'm allowing more allowance for budgets uh ending balance okay so that is for scenario one so the naman tayo scenario number two actually medyo okay scenario number two beginning okay beginning balance

1:24:34 right off recoveries okay adjusted okay adjusted allowance for bad debts okay or ending balance now allowance for budgets ending balance of allowance for bad debts how can you compute it? it says here 5% of AR what is 5% of AR? 2.5 million okay this is your AR balance 2.5 million multiply by 5% So 125,000 is your adjusted allowance for bad debts. Okay? 125,000. How much is your unadjusted? As you can see,

1:25:24 In scenario 1, the first one we computed earlier is the bad debts expense because it's based on sales. Here, the first one we computed is the ending allowance. We will only know here how much is your bad debts expense. How will we know? Let's first get our unadjusted allowance. Before, let's total them. Net credit. net credit balance can 40,000 so at the young and adjusted allowance okay and adjusted allowance 40,000 but kind of dapat yung bad expense mo okay para maging 125,000 yan

1:26:12 maganda dadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadadad So 125 less 40,000, so 85,000. So this is what I was saying earlier, the squeeze amount, your bad debts expense amount. So this is your allowance account for your AR, 125,000. So your carrying amount in this case is 2,375,000. So how do you record that? What you will record there, take note, is the amount of bad debts. okay your amount of bad debts in the record more than a day and debit can on bad debt expense credit can allow once a allowance for bad debts for scenario one time have a look at nothing in scenario one okay

1:26:59 so but it's expense more 175 thousand 175 thousand so regardless to an umatage in gina gamit at the young entry more in recognizing your bad debts expense okay So you debit the bad debts expense and credit the allowance for bad debts. Equal to the bad debts expense amount. No matter what method you use. Again, look carefully how you estimate the problem. Take note, there's no silent here on what you will use. The problem will say what is the kung anong estimation method dapat yung i-apply mo. Kung anong estimation method dapat yung i-apply mo

1:27:44 dyan. Let's go to scenario number 3. We said that the aging method and the percentage of AR method are very similar. Let's copy their template. How do we copy it? The amount is the same, the process is the same, but we don't know the adjusted allowance for bad debts. Again, this is the first thing we need to know. a la adjusted allowance for bad debts or at the young should be amount okay so how do we compute okay so let's look at the

1:28:30 um okay and then let's hide this first so take note the one above this is your aging okay wait let's remove this first oops okay take note that the age of your armo is less than one month more than one month but less than a year more than a year so the grouping is a bit high level okay for simplicity's sake so you put here their balances okay this is the balances 1.75 million okay 500 000 and then 250 000 okay

1:29:17 percentage uncollectible okay percentage and collect the ball as a natin makikita yon eto probability of collection so take note probability of collection 98 chance no macaulay tamasha 90 percent chance no macaulay tamasha and then 80 percent chance no macaulay tamasha or this is the portion that you can collect. So what is the portion that you can't collect? You know the portion that you can collect but what is the portion that you can't collect? Just take the complement with 100%. What is the

1:30:03 complement of 98%? 2%? 1 less 98%? That's 2%? and it complement no 90 percent the button percent one less ten percent ninety percent the bath at all one less eighty percent so twenty percent so at the moment a portion in expect moving the mama collect the bus you can see but asian the bath but as you portion of the momma collecta as the age of the ar increases because it's the bath so that i'm gonna Why is the customer not paying yet? So, most likely, he will not pay you because he is not paying now. I mean, for the longest period of time, he did not

1:30:49 pay. If he has the ability to pay, he should pay you immediately. reasonable lang na pataas yung percentage uncollectible mo dito kasi yun nga hanggang nadedelay nang nadedelay bago bayaran yung utang hindi na yan mababayaran ultimately okay so i multiply mo dito 1.75 million multiplied by two percent okay oops bakit 90 to ah naka 10 pala to okay so it should be one less 90 percent ayan so this is one less 98 one less 90 and then one less 80. okay multiply malang so 500 times 10 percent so 50 000

1:31:35 250 times 20 percent so another 50 000. so but the notal moyan okay but the notal muscle uh yeah but the notal muscle uh eto you own adjusted allowance for bad debts actually okay yeah and beyond that the adjusted allowance for budgets 135 000 so a copy one of shidito diba after your adjusted allowance for bad debts more again squeeze me on bad debt expense at the unadjusted more and the dapat yung i add more paramaging 135 000 yan eto 95 000 eto i recognize when a bad debt expense for the period okay So, I

1:32:22 hope we understand each other. Again, know what the basis is. Know what the basis of estimating is so you know what you're going to compute. That's the first step. Know what the problem is, what you should do. I mean, what you should do in the estimation method, that's what you should follow. Are you still there? are you still here? are we still okay? okay so that is for allowance for bad debts okay so we hide

1:33:08 uh stop sharing and then um change my camera yeah okay so after accounts receivable okay then we focused on allowance for bad debts because that is the biggest amount let us now go to notes receivable okay the number notes receivable feeling cohen alas jis time based on our pacing okay so notes receivable

1:33:54 tire okay so notes receivable again eto na yung mga formal commitment If you remember, some of our listeners or participants, there are times when you're saving money and the exam is coming up. What do you do if you haven't paid your tuition portion yet and you're already taking the exam? What do you do? You send promissory notes to the school. So that you can pass the exam.

1:34:44 Is that what you do? You give a promissory note to allow you to take the exam for the meantime even if you haven't paid the portion of your tuition fees. That's the example of the promissory note. What do you put there? It says, I promise to pay the name of the school, amount of tuition, on, when you promise to pay. That's the basic example. a structure notes receivable okay so under a notes receivable um transaction okay so this is the big parties john so meron tayong dalawang party gentle actually okay but i can't talk to the maker okay don't

1:35:29 say example not then okay don't say example not then uh promissory note don't just well hand mo you go you make her you go you go go walk no promissory note and it go young merong obligasyon doon sa promissory note. Ikaw yung required magbayad. Tapos meron ding payee. Meron ding payee. So itong payee na to, siya yung beneficiary ng promissory note na ginawa mo. Siya yung beneficiary. Siya yung makaka-receive later on. So, our perspective here, take note maker, he will be the one to recognize

1:36:15 the note payable. Because he has an obligation, he made a promissory note, he will be the one to recognize the payable, which is a liability. So payee, since for its benefit, you own promissory note, he will be the one to receive, he will be the one to recognize the notes receivable. So the notes receivable that we're talking about is in the perspective of the payee. So in our example, perspective ng skwelahan. Diba? Pag nagbigay ka sa kanila ng promissory note, ibubuk nila yun as notes receivable. Okay? So tandaan, ang perspective natin dito is na

1:37:01 kay payee. Okay? Payee perspective yung pinag-usapan natin dito. So that's the basic structure of the promissory note. What can be in the promissory note? The amount that will be paid, when will it be paid, if there's an interest, there's an accounting consequence actually, the one that there's an interest and no interest. Okay? Merong accounting consequence yun actually. Pag-uusapan natin yun mamaya. Okay? So, ayan. Yan yung basic structure. Atin yung mga parties in a usual promissory note transaction. Okay? Again, perspective ni PEI yung pag-uusapan natin today. Okay? So, paano ba natin i-account yung notes

1:37:47 receivable? Okay? Paano ba natin i-account yan? So, since notes receivable, hindi siya ganun ka common or hindi siya ganun ka straightforward as accounts receivable ang initial measurement niyan take note ang initial measurement niyan is equal to its fair value fair value yung terminology ng standard bakit? Take note, notes receivable is a financial asset. Financial assets are notes receivable. Actually, accounts are also receivable. They are financial assets. So, fair value. Financial assets are measured on initial recognition equal to their fair value plus or minus transaction cost. So, we are talking about loans receivable. because

1:38:35 normally, promissory notes don't have transaction cost. They don't have transaction cost. So usually, it's at fair value. So how do we measure the fair value of our promissory note or of our receivable notes? Actually, this is also applicable from the perspective of the maker. But the side is only payable. So how do we know the fair value of our notes receivable? To know that, let's classify our notes receivable into its different classifications. How do we classify our notes receivable? So

1:39:21 this classification, primarily based on whether, okay? Let's not write it down. It's too long. Okay? The classification is whether interest-bearing or non-interest-bearing. So, let's say interest-bearing. Okay? Interest-bearing. Okay? There's a stated rate. Then, there's a one, two, okay? So, there's a non-interest-bearing. bearing okay non-interest bearing okay so interest bearing and non-interest bearing so as you can see may malaking space sa pagitan nila kasi merong purpose yan

1:40:07 ha merong purpose yan so kapag interest bearing merong stated rate okay merong stated rate or we also call it nominal rate so in addition to the face amount of the promissory note there is an additional interest that the borrower will pay there is an additional interest that will be paid here in the non-interest bearing promissory note no stated rate no stated rate yan kaya nga non-interest bearing parang yung babayaran lang ni maker yung face amount lang wala na siyang ibang babayaran pero this is actually misnomer okay magre-recognize ka pa din

1:40:54 dyan ng interest income mamaya okay naalala mo sa mall ganito mag example tayo sa mall uh and i observed this in molle for example the cash price of a gadget let's say let's say 48,000 that's a bit expensive gadget right there 48,000 okay then it says there right this is the cash price then it says there um for 24 months you can pay it okay 2,100 per month okay zero percent interest. Go to the mall, there's a cash price amount,

1:41:40 and then there's 24 months. There's also a meaning amount. So this is how it works. If it's truly interest-free, how much is your monthly? It should be 2K. to 2,100. So it's incorporated. Most likely, if this is a non-interest-bearing promissory note, the face amount is too high. The face amount of the promissory note is too high to account for the time value of money. It's like this here. The total cash you'll pay is high. Try this. Multiply

1:42:25 this by 24 months. That's 2,100. 2,100 times 48 months i wait 24 okay 2 100 times 24 months the about 50 400 total so implied interest modian is less 48 so 2,400 so that's it that's the concept of non-interest bearing promissory note it really has interest it's just factored in I mean it's already included in the face amount okay so how do we account our notes receivable okay how do we account it okay so it depends right it depends

1:43:11 It depends if it's interest-bearing or non-interest-bearing. Let's go to the initial measurement. This is your initial measurement. For interest-bearing, before we discuss the initial measurement, there are two. First, if you own a stated rate, let's call it SR. So, stated rate or SR. stated rate is substantially equal to market rate and uh stated rate substantially equal to market rate or uh stated rate is not substantially equal to market rate so the long class

1:44:01 say you interest bearing happen okay depended on relationship stated rate and market rate okay at the non-interest bearing of course will I am stated rate so Matic Indian equals to market rate okay so any initial measurement more so can you laugh okay the bus have a not an at fair value so under by your fair value not interest bearing promissory note substantially equal you stated rate Chaka market rate at face amount Jan okay at face amount okay

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