Question

Tamarisk needs $158,000 to cover next Friday’s payroll. Its balance of outstanding accounts receivable totals $795,000. To alleviate this cash crunch, the company sells $168,000 of its receivables. Record the entry that Tamarisk would make. (Assume a 3% service charge.) (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

the accounting entry you will make will be

Bank 158,000

lost interest 4,960

bank commissions 5,040

account s receivable 168,000

Step-by-step explanation:

When the companies decide to sell their credits to the banks to make cash, they charge a commission for different concepts such as (custody, administrative expenses, collection management, ect) in this case these expenses are 168,000 x 3% = 5,040

In addition, interest is also charged to advance the money, these interest rates depend on the remaining term to collect, the valuation of the credits and whether they are guaranteed or not. The exercise does not determine how much these interests are, so we calculate them by difference

Account Receivable 168,000 minus 158,000 which is the money the company needs minus 5,040 which is the commission = 4,960 interest