Question

Jervis sells $3,900 of its accounts receivable to Northern Bank in order to obtain necessary cash. Northern Bank charges a 3% factoring fee. What entry should Jervis make to record the transaction

Answer 1

Dr cash $3783

Dr factoring fee expense $177

Cr accounts receivable $3900

Step-by-step explanation:

The cash proceeds from the factoring arrangement would be 97% of the value of the receivables since 3% is the factoring fees expenses to be incurred.

Cash proceeds=$3900*97%=$ 3,783.00

Factoring fees expense=$3,900.00-$3,783.00=$117

Cash account and factoring fees expense would be debited with $3783 and $117 respectively, while accounts receivable is credited with $3900