Factoring, Assignment, and Pledging

Question 1

Need to know:

Answer 1

• Terminology
• Forms of transfer of accounts receivable
• Calculation of Gains and Losses
• Journal Entries to account

Question 2

What is the type of transfer of accounts receivable?

Answer 2

Factoring
Assignment of AR
Pledging of AR

Question 3

What is factoring receivables?

Answer 3

The receivables are immediately transferred to a transferee.

With recourse: A recourse liability has to be estimated (in the case something is not collected)

Without recourse: Means that there is no recourse if there is no payment made.

Question 4

What is the accounting for factoring without recourse?

Answer 4

CASH (DB)
RECEIVABLE FROM FACTOR (MIGHT HAPPEN) (DB)
LOSS/GAIN (DB OR CREDIT)
AR (CR)

Question 5

What is the account for factoring with recourse?

Answer 5

Cash (DB)
Loss on Sale (DB)
Recourse Liability (CR)
AR (CR)

Question 6

What does it mean to assign AR?

Answer 6

When AR is assigned, the borrow assigns rights to specific AR as collateral for a loan.

Question 7

What does it mean to pledge AR?

Answer 7

Pledging is less formal than assigning AR. There is no classification of specific AR.