Final answer:
Assigning accounts receivable to a financing account allows Marigold company to use its accounts receivable as collateral to secure a loan or financing. This helps Marigold receive immediate cash flow and meet its financial needs without waiting for customer payments. However, fees or interest will be charged for using this financing method.
Step-by-step explanation:
Assigning accounts receivable to a financing account means that Marigold company is using its accounts receivable as collateral to secure a loan or financing. In this process, Marigold transfers its rights to receive payment from its customers to the financing account or lender. This allows Marigold to receive immediate cash flow by leveraging its accounts receivable.
For example, let's say Marigold has $100,000 in accounts receivable from its customers. Instead of waiting for its customers to make payments, Marigold assigns these accounts receivable to a financing account. The financing account or lender then advances Marigold a percentage of the value of the accounts receivable, let's say 80%, which would be $80,000. Marigold can use this cash immediately to fund its operations.
By assigning accounts receivable, Marigold can improve its cash flow and meet its financial needs without having to wait for customer payments. However, Marigold will have to pay fees or interest to the financing account or lender for using this financing method.