Chapter 14 Receivable Financing - Pledge, Assignment, and Factoring Flashcards
Receivable Financing is the ____ or capability of an entity to ____ out of its receivables.
financial flexibility, raise money
The common forms of receivable financing are:
Pledge of A/R, Assignment of A/R, Factoring of A/R, Discounting of N/R
When loans are obtained from the bank or any lending institution, the A/R may be pledged as ___ for the payment of the loan.
collateral security
Normally, the borrowing entity makes the ____ but may be required to turn over the ____ to the ___ in satisfaction for the loan.
collections, collections, bank
With respect to the pledged accounts, is an entry necessary? If yes, give the entries.
No. It is sufficient that disclosure thereof is made in a note to financial statement.
(Pledging) The entries to record the loan is:
Dr. Cash at Net Proceeds (can also be thought of as balancing amount), Dr. Discount on Note Payable at Face Value of Loan - (Face Value of LoanDiscount Rate), Cr. N/P-bank at Face Value of note. Note that (Face Value of LoanDiscount Rate) = Interest deducted in advance. Note that Net Proceeds = Face Value of loan - Interest deducted in advance.
(Pledging) Accounts were pledged at December 1, 2015 and the term of the related loan is one year. On December 31, 2015 (reporting period), the entries to record the accrued interest expense are:
Dr. Interest Expense at (FaceRateTime), Cr. Discount on note payable at the same amount.
Carrying amount of the N/P =
N/P - Carrying amount of Discount on N/P
(Pledging) Accounts were pledged at December 1, 2015 and the term of the related loan is one year. On December 1, 2015, the entries to record the payment of the bank loan are:
Dr. N/P-bank at face value, Cr. Cash at the same amount. And the discount on N/P is finally amortized as follows: Dr. Interest Expense at the carrying amount of the Discount on N/P, Cr. Discount on N/P at its carrying amount
Assignment of A/R means that a ___ called the ___ transfers its rights in some of it?s A/R to a ___ called the ___ in consideration for a loan.
borrower, assignor, lender, assignee
Assignment is a more ____ type of pledging of A/R
formal
Assignment is secured borrowing evidenced by a ____ and a ___ both of which the assignor signs.
financing agreement, promisorry note
Pledging is ___ because ___ A/R serve as collateral security for the loan.
general, all
Assignment is ___ because ____ A/R serve as collateral security for the loan.
specific, specific.
Assignment may be done either on a ____ or ____ basis
nonnotification, notification
When accounts are assigned on a nonnotification basis, as is usually the case, customers are ______, that their accounts have been _____. As a result, the customers continue to make payments to the ____, who in turn remits the collections to the ____
not informed, assigned, assignor, assignee
When accounts are assigned on a notification basis, customers are ___ to make their ___ directly to the ____
notified, payments, assignee
The assignee usually lends only a certain percentage of the face value of the accounts assigned because the assigned accounts may not be _____ by reason of such factors as ___, ____, and ____.
fully realized, sales discount, sales return and allowances, uncollectible accounts
The assignee usually charges ____ for the loan that it makes and requires a ___ or ____ for the assignment agreement.
interest, service/financing charge, commission
(Assignment) The entry to separate the assigned accounts and to record the loan are:
Dr. A/R-assigned at amount of assigned A/R, Cr. A/R at the same amount; Dr. Cash at balancing amount, Cr. Service Charge at specified amount, Cr. N/P-bank at the amount advanced by the bank. Note: The entries to separate the assigned accounts and to record the loan are the same under the nonnotification and notification basis.
