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on 30 june 2002 S(parent) sold $2000 receivable to a factor for $1500.S must reimburse the factor with any amounts not collected by 31st december 2002.S has credited the proceeds received against receivables.
please sir what is S done to receivables according to previous paragraph if he do wrong what is the correct entry for above scenario and what is the adjustment of this to consolidated financial statement sir please help me regards this issue its actually a test your understanding 2 of chapter 18 of kaplan book please sirS has not given up all the risks and rewards related to this asset – he is obliged to reimburse the factor in the event of non-collection.
Therefore the receivable is still the asset of S and the $1,500 should NOT have been credited against Receivables
So where should it have gone? The transaction is, in effect, a loan so the double entry should have been:
Dr Cash
Cr Loan AccountOk?
sir dr should be receivable and 1500 is current liability
is i am correct
and credited the proceeds received against receivables means that he should reduce his receivables by 1500NO! The debit is cash – that’s what has been received.
S, the parent, has debited cash and has incorrectly credited Receivables
So, S has already reduced Receivables.
The correct entry is as I have already posted:
Dr Cash
Cr Loan AccountWhat has happened is:
Dr Cash
Cr ReceivablesSo, to correct, we need to:
Dr Receivables
Cr Loan AccountOk?
sir thank you so much you had just solved all confusion running on my mind regarding this issue you explained it in detail i am very thankfull for your kindness
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