Question

Shown below are several accounts from a company's ledger with each account preceded by an identification number, and a transaction completed by this company. Indicate the number corresponding to the account debited and the number corresponding to the account credited when journalizing this transaction.

1. Accounts payable
2. Accounts receivable
3. Allowance for doubtful accounts
4. Bad debt expense
5. Cash
6. Factoring Fee Expense
7. Interest earned
8. Interest expense
9. Interest receivable
10. Notes payable
11. Notes receivable
12. Sales

Transaction - Sold accounts receivable incurring a factoring fee. The number corresponding to one of the accounts debited is ___________ and the number corresponding to the other account debited is ____________. The number corresponding to the account credited is ______________.

Answer 1

When a company sells accounts receivable incurring a factoring fee, the account debited is Accounts Receivable and the account credited is Cash.

Step-by-step explanation:

When a company sells accounts receivable and incurs a factoring fee, the accounting entries involve debiting the Accounts Receivable account and crediting the Cash account. The Accounts Receivable account represents the outstanding amounts owed to the company by its customers. By debiting this account, the company acknowledges the reduction in the amount receivable due to the sale of the accounts receivable.

Simultaneously, the Cash account is credited to reflect the cash received by the company from the sale. The factoring fee incurred is typically treated as an expense on the income statement. This transaction not only provides the company with immediate cash flow but also transfers the responsibility of collecting on the receivables to the entity that purchased them, relieving the selling company of the associated credit and collection risks.