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    Receivable Financing

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    Jannah May Bolano
    The document discusses various types of receivable financing including pledging, assigning, factoring, and discounting notes receivable. It provides details on how each type works, such as total accounts receivable being pledged but still accounted for normally under pledging, or the absolute sale of receivables at a discount under casual factoring. The key information is that Leomord Company pledged $4,000,000 of accounts receivable as collateral for a $3,000,000 loan with an 8% interest rate and 10% finance fee.

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    Receivable Financing

    Uploaded by

    Jannah May Bolano
    13 views4 pages
    The document discusses various types of receivable financing including pledging, assigning, factoring, and discounting notes receivable. It provides details on how each type works, such as total accounts receivable being pledged but still accounted for normally under pledging, or the absolute sale of receivables at a discount under casual factoring. The key information is that Leomord Company pledged $4,000,000 of accounts receivable as collateral for a $3,000,000 loan with an 8% interest rate and 10% finance fee.

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    The document discusses various types of receivable financing including pledging, assigning, factoring, and discounting notes receivable. It provides details on how each type works, such as total accounts receivable being pledged but still accounted for normally under pledging, or the absolute sale of receivables at a discount under casual factoring. The key information is that Leomord Company pledged $4,000,000 of accounts receivable as collateral for a $3,000,000 loan with an 8% interest rate and 10% finance fee.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    13 views4 pages

    Receivable Financing

    Uploaded by

    Jannah May Bolano
    The document discusses various types of receivable financing including pledging, assigning, factoring, and discounting notes receivable. It provides details on how each type works, such as total accounts receivable being pledged but still accounted for normally under pledging, or the absolute sale of receivables at a discount under casual factoring. The key information is that Leomord Company pledged $4,000,000 of accounts receivable as collateral for a $3,000,000 loan with an 8% interest rate and 10% finance fee.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Receivable Financing

    • It is the financial flexibility or capability of an entity to raise money out of its receivables.
    • Acceleration of collection of receivables

    Pledging

    • Total or all of the accounts receivable is used.


    • The account receivable is accounted for normally but are not classified.
    • Accounting for the loan shall be made with respect to the proceeds, recording of interest and
    payment of the principal.
    Leomord Company pledged 4,000,000 of accounts receivable as collateral for a3,000,000 loan with a bank. The
    bank assessed a 10% finance fee on the amount of the loan and charged 8% annual interest on the note at
    maturity. What is the journal entry to record the transaction?

    Assignment

    • A specific portion or specific accounts receivable are used as collateral.


    • A reclassification is made on the assigned accounts.
    • Recognized the proceeds as a liability and charge interest on the carrying value of the liability.
    • May be done on notification or non-notification basis.
    • Disclosure on the “equity on the assigned accounts or of the assignor” is disclosed in the notes.
    Factoring

    • The absolute sale of receivables is known as factoring.


    • Usually done on a without recourse, notification basis.

    Casual Factoring

    • A sale of the receivables at a discount


    • Similar to any type of sale of an asset in order to generate cash quickly.
    • Sale is always made below the carrying amount or the net realizable value of the accounts
    receivable.

    Factoring as a Continuing Agreement

    • Involves the sale of accounts receivable to a financing entity on a long-term basis.


    • Buyer is committed to buy the receivables before the actual goods are sold to the customers on
    credit.
    Discounting of Notes Receivable

    • Generating cash out of the note prior to maturity.


    • May be done on a with or without recourse basis.

    Without Recourse

    ➢ This represents absolute sale of notes receivable.


    ➢ Amount received will represent from the proceeds of sale of the notes. A loss on discounting is
    normally recognized.

    With Recourse

    ➢ Notes receivable can also be sold but it is usually with recourse meaning the seller is
    contingently liable if the maker of the promissory note is able to pay the maturity value at
    maturity date.

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