Re. Future A/R factoring

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#1
cpa4Him  
Posts:
1
Joined:
17-Jan-2022 3:35pm
Location:
North Carolina
Hello,
I have 2 clients in 2021 who used a factoring company, in which they sold a portion of their future A/R and received the money upfront. In one case, they sold $437,500 of future receivables at a purchase price of $350,000, of which $3,500 was the origination fee. So, in essence, they paid $437,500 for $346,500. Since this is not your traditional A/R factoring, how do I account for this transaction on the books? Please note that this is not a loan and no particular set of invoices was taken into account in terms of A/R. I am completely lost.
 

#2
Posts:
20
Joined:
29-Nov-2021 10:54am
Location:
NC
Hi, I know you say it is not a loan, but it is a secured debt. You shouldn't write off the A/R until it is collected, so I would create a contra-asset account to show it against the A/R. When the A/R is collected and remitted to the factoring company (proportionate percentage of 350000/437500), the excess should be an expense

Cash..........350000
..Secured Debt against A/R............ 350000

----------------------------
when A/R is collected and paid to the factoring company

Cash................10000
..A/R.......................................10000

Factor Company Fees...2000
Secured debt ............8000
..Cash .......................................10000

(edited to format to DR/CR columns)
 


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