3. Victoria Company purchases the accounts receivable of other companies on a without recourse, notification basis under a regular factoring. At the time the receivables are factored, 15% of the amount factored is charged to the client as commission and recognized as revenue in Victoria's books. Also, 10% of the receivables factored is withheld by Victoria as protection against sales returns or other adjustments. This amount is credited by Victoria to the Client's Retainer account. At the end of each month, payments are made by Victoria to its clients so that the balance in the Client's Retainer account is equal to 10% of unpaid factored receivables. Based on Victoria's doubtful accounts expense experience, an allowance for doubtful accounts of 5% of all factored receivables is to be established. Victoria makes adjusting entries at the end of each month. On January 3, 2021, Anthony Company factored its accounts receivable totaling P1,000,000. By January 31, P800,000 on these receivables had been collected by Victoria. REQUIRED: > Prepare the journal entries on Victoria's and Anthony's books in relation to factoring.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
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