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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):
• 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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