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- July 19, 2017 at 8:00 pm #397650
Hi Sir
Thank you for your lectures – they’re very helpful.
I’ve found a number of examples relating to how to correct an accounting error where receivables have been incorrectly derecognised, following the factoring of receivables. I can’t, however, find any examples of what the double entry would be if in fact the factoring of receivables was without recourse (the original seller disabused themselves of all of the associated risks and rewards) and the factoring therefore does constitute a “sale” of the receivables asset.
Would you be able to advise on what the double entry would be to account for the factoring, in the first instance, when the factoring of trade receivables is with recourse and, ultimately, the risks and rewards pertaining to the receivables is still incumbent on the original seller?
Question 10, of the mini exercises (answer on page 242) illustrates a correction to the incorrect accounting treatment. The receivables allowance is debited, but aren’t receivables allowances ordinarily credited and the bad debt expense then debited to the statement of profit or loss? Further, if an organisation has factored its receivables, but maintains the risks and rewards associated with the timing and percentage of collection, would that mean that it should maintain any associated receivables’ allowances?
Thank you so much.
July 19, 2017 at 8:47 pm #397664“Would you be able to advise on what the double entry would be to account for the factoring, in the first instance, when the factoring of trade receivables is with recourse and, ultimately, the risks and rewards pertaining to the receivables is still incumbent on the original seller?”
This is inconsistent with your first paragraph! You say in para 1 that “You’ve found a number of examples relating to how to correct an accounting error where receivables have been incorrectly derecognised, following the factoring of receivables”
But now you’re asking me for the double entry?
You have then gone on to say “I can’t, however, find any examples of what the double entry would be if in fact the factoring of receivables was without recourse”
It strikes me (and I may be wrong!) that your question intended to ask “…what the double entry would be if in fact the factoring of receivables was without recourse”
And the answer to that is easy
Say receivables sold without recourse were $10,000, cash received WITH recourse would be (say) $9,000 and WITHOUT recourse would be (say) $8,500
Double entry would be Without recourse:
Dr Cash $8,500
Dr Finance costs $1,500
Cr Receivables $10,000Was I correct in my assumption or do you really want the entries for factoring with recourse?
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