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What details do you want? Receivables are an asset. A company wishes to realize the cash represented by that asset. So they sell the asset. It’s called factoring when that asset is receivables
Do you need more than that?
@mikelittle said:
What details do you want? Receivables are an asset. A company wishes to realize the cash represented by that asset. So they sell the asset. It’s called factoring when that asset is receivablesDo you need more than that?
The accounting treatment depends on whether substantially the whole of the risks and rewards have been transferred in the factoring arrangement.
In most (all?) exam questions the debt is transferred back in the event of non-collection by the factor
In this case, the “sale” of the receivables is, in fact, not a sale so there is no accounting entry in the receivables account.
The money received from the factor is, in effect, a loan and is debit cash, credit loan
If there is no worry about the return of the debt in the event of non-collection then the entry is simply debit cash and credit receivables
There will be less cash received than the carrying value of the receivables. That difference will be debited to factoring / finance charges in the statement of income
Ok now?
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