How is Accounts Receivable accounted for when it is sold to a factor on a with...
How is Accounts Receivable accounted for when it is sold to a factor on a with recourse basis? Without recourse?
Homework Answers
Part 1 - without recourse.
Cash a/c. ..dr. XXX (As we are receiving the cash)
Interest expense ..dr. XXX (As factor charging int. From us thats. The same is exp. For us)
To account receivable. XXX ( as we sold the account receivable to factor)
Part 2 - with recourse
Cash a/c. ...dr. XXX
Due from factor ..dr. XXX ( add. Amount which is hold by the factor on the account of doubt)
To short term debt. XXX ( as these a/c receivables can again given to co. Treated as debt)
The account “Due from factor” is the potential payment for possible non-collectibles
Cash a/c ...dr. XXX. ( The add. Amount is holded paying back)
Prov. For doubtful debts. ..dr. XXX ( those receivable which have not paid to the factor)
To due from factor
Short term debt. ....dr. XXX (WHEN liability is over)
Int. Exp. ...dr. Xxx (book the int exp)
To account receivable xxx. ( Close the a/c)
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