Professional Documents
Culture Documents
Ia RF ND 1
Ia RF ND 1
Ia RF ND 1
20 Cash 300,000
• May 20 Collected P300, 000 of the Accounts Receivable - Assigned 300,000
assigned accounts. To record collection
Illustration – nonnotification
DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT
basis
• May 30 Remitted the total May 30 Note Payable - Bank 266,000
Interest Expense 2,660
amount due the bank to pay off Cash 268,660
the loan balance plus interest for To record remittance to bank
one month.
30 Accounts Receivable 65,000
Note Payable - Bank 560,000 Accounts Receivable - Assigned 65,000
Less: Remittance Apr 30 294,000 To transfer the remaining balance
Balance – May 30 266,000 of assigned accounts
Multiply by Interest Rate 1%
Interest Expense
COMPUTATION
2,660 700,000
Total Accounts Receivable Assigned
LESS: Collection 594,000
Sales Discount 6,000
Sales Return 20,000
Write-Off 15,000 635,000
REMAINING BALANCE 65,000
PROBLEM 8 - 5 DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT
Problem 8 – 4
FACTORING
Factoring
• a sale of accounts receivable on a without recourse, notification basis.
• In a factoring arrangement, an entity sells its accounts receivable to a bank or
finance entity called a factor
• a gain or loss is recognized for the difference between the proceeds received
and the net carrying amount of the receivables factored.
• Factoring differs from an assignment
• transfers ownership of its accounts receivable to the factor.
• the factor assumes responsibility for uncollectible factored accounts.
• In assignment, the assignor retains ownership of the accounts assigned.
• the customer whose accounts are factored are notified and required to pay
directly to the factor.
• The factor has then the responsibility of keeping the receivable records and
collecting the accounts.
Factoring
• 2 Forms:
• Casual Factoring
• If an entity finds itself in a critical cash position, it may be
forced to factor some or all of its accounts receivable at a
substantial discount to a bank or a finance entity to obtain the
much needed cash.
• Factoring as a Continuing Agreement
Casual Factoring
• For example, an entity factored P100, 000 of accounts receivable with
an allowance for doubtful accounts of P5, 000 for P80, 000.
• The entry to record the sale is:
Cash 80,000
Allowance for doubtful accounts 5,000
Loss on factoring 15,000
Accounts Receivable 100,000
Problem 9 – 1
DISCOUNTING WITH RECOURSE COMPUTATION
PRINCIPAL 2,400,000
• A P2,400,000, 6-month, Add: INTEREST * 12% * 6/12 144,000
12% note dated February 1 MATURITY VALUE 2,544,000
of the current year is Less: DISCOUNT * 15% * 5/12 159,000
received from a customer NET PROCEEDS 2,385,000
by an entity and Less: CARRYING AMOUNT of NR
discounted by First Bank on 2,400,000 + (144,000 * 1/6) 2,424,000
March 1 at 15%. GAIN / (LOSS) on NR DISCOUNTING ( 39,000)
Accounting for note receivable discounting
• If the discounting is with recourse, the transaction is
accounted for as either of the following:
1. Conditional sale of note receivable recognizing a
contingent liability
2. Secured borrowing
CONDITIONAL SALE SECURED BORROWING
The note receivable is not the note receivable is not derecognized,
derecognized, instead a “note instead an accounting liability is recorded at
receivable discounted” account is an amount equal to the face amount of the
recorded. (contra account) note.
DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT
SECURED BORROWING
Jun 1 Notes Receivable 5,000,000
Sales 5,000,000
To record sales to Aye Company (12% 90-day)
CONDITIONAL SALE
Note Receivable – Discounted 6,000,000
Note Receivable 6,000,000
SECURED BORROWING
Liability for Note Receivable Discounted 6,000,000
Note Receivable 6,000,000
• August 30 The bank notified Chameleon Company that Aye
Company defaulted on the note and charged the amount of
principal, interest and a fee of P20,000 against Chameleon’s bank
account. (SECURED BORROWING)
Cash 5,376,800
Accounts Receivable 5,170,000
Interest Income 206,800