Unformatted text preview: eceivable. Disposition of Accounts and Notes Receivable
Disposition of Accounts and Notes Receivable
Company may transfer A/R or N/R to another company for cash because of:
Competition (must sell products on credit, but may not be good at the collections game).
Billing/collection are timeconsuming and costly processes.
Need for cash money is tight or poor cash management practices employed. Transfer accomplished by:
1. Secured borrowing (PLEDGING)
2. Sale of receivables (FACTORING)
7-53 LO 8 Explain accounting issues related to disposition
of accounts and notes receivable.
of Secured Borrowing (PLEDGING)
Secured Borrowing ((PLEDGING)
1. Setup N/P and pay all “upfront” fees at start.
2. Collect own A/R and remit ALL $$$ collected N/P AND interest are paid off. until both Illustration: March 1, 2010, Howat, Inc. provides (or assigns) $700,000 of its A/R to Citizens Bank as collateral for a $500,000 note. Howat continues to collect the A/R and the debtors are NOT notified of...
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