Sample journal entry (using an ACC 201
class session)
(Your name)
November 21, 2002
Key concepts:
1. Companies can get immediate cash for accounts receivable. The two major financing arrangements covered were receivable assignment and factoring. In an assignment of receivables, the receivables are used as collateral for a loan. In factoring, receivables are sold to a third-party called a factor.
2. Factoring can be done with or without recourse. If receivables are sold without recourse, the factor has to absorb any bad debt loss. If receivables are sold with recourse, the factor can go back to the company that sold the receivables and recover for uncollectible accounts.
3. If factoring is with recourse, then the transaction is treated as either a sale of receivables, or as a loan. Assignment of receivables seems pretty straightforward because it's really just accounting for a short-term loan.
My Review:
I did the two assigned exercises, E 8-13, E 8-16 I thought that I understood receivable assignment, but when I first read the problem, I didn't know where to start. I looked at the example in the course packet and the example on pp. 369-370 of the text. By following the example, I was able to do E 8-13, but I need to ask Dr. Welsh where the $600 for sales discounts came from in the text example.
There was also nothing assigned on factoring with recourse. I went over the examples in the book on pp. 372-373. I need to think more about the journal entries and why the various accounts are debited and credited.
Question:
The book calculated interest expense using 30/365 and in class, we just used 1/12. Does that matter?
I don't see the point of "Factoring with Recourse Treated as a Borrowing", even after reading the book. We ran out of time in class. Can you go over that again?