USA Accounting for a company that finances receivables

[carbus]

We are an LLC that provides financing for a refurbishing company by essentially financing their receivables. For example, we wire $200K to our client's vendor and then receive $210K one month later, when the client sells the refurbished product. There is no set % return - it is just based on the value received for the refurbished product. How would I account for these transactions and the resulting gain in QuickBooks?

Thank you.

 

[bklynboy]

I will need more specifics to make sure I understand the situation but it sounds like what you are doing is extending credit to a company to allow them to sell their products and you generate a return on that loan. I would account for the initial transfer of funds as a loan receivable on your books. This loan needs to accrue interest (which is your return) but given the small turnaround time of the loan (assuming they are less than 90 days) I would simply record interest when received as part of the loan repayment. At that point you reverse the loan receivable with the excess recorded as interest income.

Technically US GAAP requires you to calculate imputed interest while the note is outstanding with the specifics discussed in ASC 835-30. Note that I would not call the excess repaid a "gain" but classify as interest income. You may also need to consider a valuation allowance if these transactions could result in a loss (i.e. what happens if the refurbished product does not sell for at least the value of the initial loan?)

 

[carbus]

Thank you

This is very helpful. Thank you for your reply.