Sale of Receivables


J

Janice Davis

As far as the text book goes, I do not like dealing with the sale of receivables. Anyone have any tips to make the concepts easier to grasp?
 
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J

John

As far as the text book goes, I do not like dealing with the sale of receivables. Anyone have any tips to make the concepts easier to grasp?


do you mean sale of the "product"? normally a business would not sell its receivables
 
J

Janice Davis

In the textbook case, a company that needs cash may decide to sale its account receivables to a lender with or without recourse.
As far as the text book goes, I do not like dealing with the sale of receivables. Anyone have any tips to make the concepts easier to grasp?


do you mean sale of the "product"? normally a business would not sell its receivables
 
J

John

OK - it's called factoring - and that's as much as I know!


...
In the textbook case, a company that needs cash may decide to sale its account receivables to a lender with or without recourse.

As far as the text book goes, I do not like dealing with the sale of receivables. Anyone have any tips to make the concepts easier to grasp?


do you mean sale of the "product"? normally a business would not sell its receivables
 
J

Janice Davis

Yep, I am studying this right now in my IFA class and was wondering if anyone had some helpful hints in making it easier to understand. I am not a complete nitwit about it, but I have a little trouble setting up the solution.
OK - it's called factoring - and that's as much as I know!
 
J

John

I don't have any easy hints but the debits and credits to reflect the sale of a receivable and recording payments should be straight forward (I would think!)


Yep, I am studying this right now in my IFA class and was wondering if anyone had some helpful hints in making it easier to understand. I am not a complete nitwit about it, but I have a little trouble setting up the solution.
OK - it's called factoring - and that's as much as I know!
 
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J

Janice Davis

It is. Let me give you the problem my instructor gave me. This is his own creation.

On April 9, Porcupine Farms had on its books an A/R for $12k for Bad Co. Since Bad could not make the payment, Porcupine accepted a 90-day, 12% note for $12k, dated June 6, for payment. On July 6, Porcupine discounted the note, with recourse, at the West Bank of Escambia, at 15% and properly recorded the discounting as a sale (SFAS #77). Because the note was not paid at maturity, the bank charged Porcupine a protest fee of $25 (plus the MV of the note). On September 28, the note was collected by Porcupine with interest at 15% from the maturity date to the date of collection. Prepare the journal entries that would appear on Porcupine's books as a result of the transactions. (Round to nearest dollar.)

I have already worked this problem, which took me awhile. Do you see what I mean in getting the solution set up? I am sure going through this problem a few more times before the test will help a lot, but still, I just don't like the textbook style of dealing with factoring! :eek:)

Janice
 
J

John

it's a little late tonite but would go something like this - (don't think this is realistic!)

record the note -
notes receivable 12,000
A/R 12,000

record the discount to bank-
Db Cash 10,200
DB "factor interest? 1,800
Cr notes rec. 12,000

note interest 12k @ 12% 90 days = $355


add'l interest 12k 15% 22 days = $108

the $25 -
db interest 25
cr cash 25






It is. Let me give you the problem my instructor gave me. This is his own creation.

On April 9, Porcupine Farms had on its books an A/R for $12k for Bad Co. Since Bad could not make the payment, Porcupine accepted a 90-day, 12% note for $12k, dated June 6, for payment. On July 6, Porcupine discounted the note, with recourse, at the West Bank of Escambia, at 15% and properly recorded the discounting as a sale (SFAS #77). Because the note was not paid at maturity, the bank charged Porcupine a protest fee of $25 (plus the MV of the note). On September 28, the note was collected by Porcupine with interest at 15% from the maturity date to the date of collection. Prepare the journal entries that would appear on Porcupine's books as a result of the transactions. (Round to nearest dollar.)

I have already worked this problem, which took me awhile. Do you see what I mean in getting the solution set up? I am sure going through this problem a few more times before the test will help a lot, but still, I just don't like the textbook style of dealing with factoring! :eek:)

Janice
 
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J

John

I'm not sure about it now but I'm signing off and will look at it again in the morning !


it's a little late tonite but would go something like this ?? - (don't think this is realistic!)

record the note -
notes receivable 12,000
A/R 12,000

record the discount to bank-
Db Cash 10,200
DB "factor interest? 1,800
Cr notes rec. 12,000

note interest 12k @ 12% 90 days = $355


add'l interest 12k 15% 22 days = $108

the $25 -
db interest 25
cr cash 25






It is. Let me give you the problem my instructor gave me. This is his own creation.

On April 9, Porcupine Farms had on its books an A/R for $12k for Bad Co. Since Bad could not make the payment, Porcupine accepted a 90-day, 12% note for $12k, dated June 6, for payment. On July 6, Porcupine discounted the note, with recourse, at the West Bank of Escambia, at 15% and properly recorded the discounting as a sale (SFAS #77). Because the note was not paid at maturity, the bank charged Porcupine a protest fee of $25 (plus the MV of the note). On September 28, the note was collected by Porcupine with interest at 15% from the maturity date to the date of collection. Prepare the journal entries that would appear on Porcupine's books as a result of the transactions. (Round to nearest dollar.)

I have already worked this problem, which took me awhile. Do you see what I mean in getting the solution set up? I am sure going through this problem a few more times before the test will help a lot, but still, I just don't like the textbook style of dealing with factoring! :eek:)

Janice
 

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