Question

Accounts receivable sold with the risk of nonpayment by customers assumed by the transferor of the receivables is a sale ______ recourse, whereas receivables sold with the risk of nonpayment assumed by the transferee is a sale ______ recourse.

1) with, without
2) without, with
3) with, with
4) without, without

Answer 1

The correct answer is 1) with, without, where 'with recourse' means the seller retains the risk, and 'without recourse' means the buyer assumes the risk.

Step-by-step explanation:

Accounts receivable sold with the risk of nonpayment by customers assumed by the transferor of the receivables is a sale with recourse, whereas receivables sold without the risk of nonpayment assumed by the transferee is a sale without recourse. The correct answer to the question is option 1) with, without.

A sale with recourse indicates that the seller of the receivables remains liable in case the debtors fail to pay, meaning they have to bear the risk of nonpayment. On the other hand, a sale without recourse transfers the risk of nonpayment to the buyer of the receivables, thereby relieving the seller from any responsibility if the debtors do not pay.