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Cinder Corp factored, with recourse, $150,000 of accounts receivable with Greedy Financing. The...

Question:

Cinder Corp factored, with recourse, $150,000 of accounts receivable with Greedy Financing. The finance charge is 3%, and 5.5% was retained to cover sales discounts, sales returns, and sales allowances. Cinder estimates the recourse obligation at $1,750. What amount should Cinder report as a loss on sale of receivables?

Accounts Receivable Factoring

It is a type of financing with the use of accounts receivable as collateral. It is when a company sells its outstanding accounts receivable to a financing company, also known as a factor that specializes in buying receivables for its immediate cash needs without waiting for the receivables to be due.

Answer and Explanation:

To record the factoring of accounts receivable with recourse:

Accounts Debit Credit
Cash 150,000 - (150,000 x 8.5%) - 1,750 135,500
Due From Factor (Holdback) (150,000 x 5.5%) 8,250
Loss on Receivable Factoring (150,000 x 3%) + 1,750 6,250
Notes Payable 150,000

The loss on receivable factoring is attributable to finance charges and recourse obligation of $1,750. Hence, the total loss is amounting to $6,250


Learn more about this topic:

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Receivables Management: Definition & Purpose

from Accounting 101: Financial Accounting

Chapter 7 / Lesson 4
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