Trade Receivables

Question 1

Describe Factoring Receivables without Recourse

Answer 1

Factoring Receivables without Recourse is a sales transaction. Factoring without recourse transfer the risk of credit to the buyer.

Factoring Receivables without Recourse;
- A Sales Transaction
- The Sale is final
- The buyer (factor) has no recourse against the seller
- The buyer assumes the risk of any losses on collections

Question 2

Define CECL

Answer 2

Current Expected Credit Loss Method is used to match expenses with revenues and to record the proper carrying amount for accounts receivable. Allowance for Credit Losses.

Question 3

JE for Recognizing credit Losses

Answer 3

When the current credit loss method (CECL) is used, the entry to record the adjustment for credit losses (write off) of a specific account decrease both AR and allowance for credit losses.

DR Allowance for Credit Losses
CR AR

Question 4

Describe a Pledge of AR

Answer 4

A pledge of AR simply involves the use of receivables as collateral for a loan. The receivables remain on the company’s books and the company continues to service the receivables. When the cash proceeds are received by the company, a credit is recorded to notes payable. Pledging receivables as collateral only requires note disclosure.