Question

Ferule, Inc. factors its accounts receivable without recourse. The factoring is recorded as:

A) A secured borrowing.
B) Only note disclosure of the arrangement is required.
C) A sale.
D) None of these answer choices are correct

Answer 1

The correct answer is letter "C": A sale.

Step-by-step explanation:

Factoring with recourse implies a company selling unpaid accounts receivable to a third party. This is done so the firm can generate cash advances. The third party, called the factoring company, takes care of the collection of the debt charging the firm a commission based on each invoice collected.

When a firm sells its account receivables to a factoring company, the firm records the transaction as a sale.