Financial Act Chpt 8 Notes

Assignor usually pays collection costs and keeps risk

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Unformatted text preview: loan. • Assignor usually pays collection costs and keeps risk of any bad debt losses • Assignor still collects on A/R, then pays assignee cash collected each month • On Balance sheet: Still include accounts receivable assigned as part of A/R, and show Loan Payable. Would list details of assignment in notes to the financial statements. - Factoring Accounts Receivable: (a sale of the company's receivables): rd • Helps company to collect cash sooner by selling rights of A/R to 3 party to get cash • Accounts receivable removed from books, normally loss on the sale • With recourse: Seller guarantees payment if can't collect A/R, risk of loss is the seller's • Without recourse: Seller does not guarantee payment; risk of loss is the purchaser's Can record a sale if: • Transferred asset has been isolated from the transferor • Transferee has obtained right to pledge or exchange the transferred assets (AIR) or has beneficial interest in transferred assets • Transferor no longer maintains effective control of the transferred assets Estimating Uncollectible Accounts: • Percentage of Net Sales (Income Statement Approach): Company takes a % of net credit sales...
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