Question

Accounting for the pledging of accounts receivable as collateral for a loan requires what?

1) Recognition of the loan as a liability
2) Recognition of the pledged accounts receivable as an asset
3) Disclosure of the pledging arrangement in the financial statements
4) All of the above

Answer 1

Accounting for the pledging of accounts receivable as collateral for a loan requires the recognition of the loan as a liability, recognition of the pledged accounts receivable as an asset, and disclosure of the pledging arrangement in the financial statements.

Step-by-step explanation:

Accounting for the pledging of accounts receivable as collateral for a loan requires:

1. Recognition of the loan as a liability: When accounts receivable are pledged as collateral for a loan, the loan must be recognized on the balance sheet as a liability.
2. Recognition of the pledged accounts receivable as an asset: The accounts receivable that are pledged as collateral should be recognized on the balance sheet as an asset.
3. Disclosure of the pledging arrangement in the financial statements: It is important to disclose the arrangement where accounts receivable are pledged as collateral for a loan in the financial statements to provide transparency to stakeholders.

Therefore, the correct answer is 4) All of the above.