Which of the following is not a correct statement? a. Accounts receivable are discounted in the...

Question:

Which of the following is not a correct statement?

a. Accounts receivable are discounted in the same way as promissory notes.

b. When accounts receivable are factored, invoices are irrelevant.

c. Promissory notes are a type of commercial paper.

d. Commercial paper is a short-term corporate debt.

e. When promissory notes are factored, the full face value is not redeemed.

Receivables:

Receivables is a term used in finance and accounting. It refers to sales made on credit. Receivables are a current asset and are considered to be a use of cash flow rather than a source. As a result, some companies like to sell their receivables to the bank at a discount. This practice is referred to as factoring.

Answer and Explanation:

The answer is: b. When accounts receivable are factored, invoices are irrelevant. False, invoices are critical for controller-ship functions. Invoices provide companies with a way to track information like the date the good was sold, what was paid, how it was paid and what debt is outstanding. It's also a tool for fraud control that tracks which employees touch the sale and/or the items sold.

a. Accounts receivable are discounted in the same way as promissory notes.

True, accounts receivable are a type of promissory note.

c. Promissory notes are a type of commercial paper.

True, commercial paper is an unsecured form of a promissory note.

d. Commercial paper is a short-term corporate debt.

True, commercial paper is characterized by its short-term nature.

e. When promissory notes are factored, the full face value is not redeemed.

True, the difference is considered interest.


Learn more about this topic:

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Accounts Receivable: Definition, Process & Examples

from Accounting 101: Financial Accounting

Chapter 7 / Lesson 1
70K

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