Receivables

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

• Trade Receivables - Receivables arising from the sales of goods and services in the ordinary source of business.

• Accounts Receivables - Receivables are not supported by promissory notes.

• Notes Receivables - Receivables supported by promissory notes

• Nontrade Receivables - Receivables arising from other sources not from the sale of goods and services.

Presentation of Receivables in the Statement of Financial Position

• Current Assets - Assets collected within the normal operating cycle or one year.

• Noncurrent Assets - Assets collected beyond one year regardless of the length of the normal operating cycle.

Uncollectable Accounts or Bad Debts

• Bad Debts Expense - Certain portion of receivables may not be collected./ uncollectible amount.

• Allowance Method & Direct write off Method - Two methods in the accounting for Bad Debts

• Aging of Accounts Receivable - The most commonly practiced in estimating the uncollectible accounts.

Notes Receivable & Notes Payable

• Promissory Note - A written unconditional promise to pay the lender or someone else who acquires the note, a certain in money, on demand or at definite time, signed by the maker.

• Maker - The one who made and signed the note and makes payment upon due date. Known as a borrower or debtor.

• Payee - The one whose order the note is payable and receives payment upon due date. Known as lender or creditor.

Honored and Dishonored Note

• Honored Note - Maker pays the note at the due date.

• Dishonored Note - Maker failed to pay the note at the maturity date.

• Discount Period - The remaining term of the note from the date of discounting to the maturity date.

Terminologies

• Principal - Refers to the face value of the note or the amount borrowed

• Interest - Refers to the rental for the use of money or charges for borrowed money. I= PxRxT

• Interest Rate - Refers to the percentage or factor imposed as charges for the borrowed money. Rate appearing in the face of the note.

• Interest Expense - Refers to the interest that a debtor is obliged to pay to the creditor.

• Interest Income - Refers to the interest that a creditor is entitled to receive from the debtor.

• Maturity Value - Refers to the amount that is due at the maturity date. Principal+Interest

• Maturity Date - It is known as the due date. Refers to the date when the note becomes due for the payment or collection.

• Date of the Note - Refers to the date when the note was made and signed.

• Term of the Note - Refers to the life of the note. Expressed as days, months, or years.

• Maturity Date Non Interest Bearing Note - It is equal to the face amount of the note.

• Maturity Date Interest Bearing Note - It is equal to the face amount of the note + interest.

• Interest Bearing Note - Refers to the note that provides for the payment of the interest for the period from the issuance date to the maturity date.

• Time - Refers to the period from the date of the note up to the maturity date.

• Discounting Notes - Refers to the act of transferring a note with recourse to a bank.

• Proceeds/ Net Proceeds - Refers to the amount received by the endorser from the endorsee. Maturity Value- Discount

• Discount - Refers the amount deducted to the Maturity Value. MV x DR x DP

• Discount Rate - Refers to the rate charged by the bank upon discounting.

• Discount Period - Refers to the numbers of the days from the date of discounting up to the maturity date of the note.