Explore BrainMass

Explore BrainMass

    Which is true when accounts receivable are factored

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Question 10

    Which of the following is true when accounts receivable are factored without recourse?
    Choose one answer.

    a. The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of the transaction.
    b. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables.
    c. The factor assumes the risk of collectability and absorbs any credit losses in collecting the receivables.
    d. The financing cost (interest expense) should be recognized ratably over the collection period of the receivables.

    © BrainMass Inc. brainmass.com October 10, 2019, 2:49 am ad1c9bdddf

    Solution Preview

    a. In theory, a company cannot factor receivables without having had a sale, so this false.
    b. The idea of factoring is to be paid immediately for receivables, do this is ...

    Solution Summary

    The response explains why three of the four statements and false, and provides three sentences in explanation of the true statement.