Question

Knowledge Check 01 On December 1, Altona Winery sells $100,000 of its accounts receivable and is charged a 5 percent factoring fee. Prepare the December 1 journal entry for Altona by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Answer 1

December 1, 202x, accounts receivables are factored to X company.

Dr Cash 95,000

Dr Factoring fees expense 5,000

Cr Accounts receivable 100,000

Step-by-step explanation:

Instead of using a factoring fees expense account, some people like to use other accounts like: Loss on factoring account, Interest expense account, or others, but they all basically represent the same thing and they all decrease income.

In this example, the factoring was done without recourse, which means that the factoring company paid the full amount of the accounts receivable (minus their fee) when the transaction was made.