Question

Recording a Sale of Accounts Receivable Without Recourse

Bappa Apparel manufactures fine sportswear for many national retailers and frequently sells its receivables to factors as a means of accelerating cash collections. Bappa sold $100,000 of receivables to a factor. The receivables were sold without recourse. The factor charged 6% and held back 5% for sales adjustments. Record Bappa’s required entry.

Account Name	Dr.	Cr.
Cash	?	?
Receivable from Factor	?	?
?	?	?
?	?	?

Answer 1

Solution

Account title and explanation	Debit	Credit
Cash	$        89,000.00
Receivable from Factor	$           5,000.00
Loss on sale of receivables	$           6,000.00
Accounts Receivables		$      100,000.00
(To record Sale of receivable)

Receivable from factor is 5% of accounts receivables held back.

Loss is 6% charged as fees for factoring. (100000 x 6%)