eceivable records were transferred to Buyer. 31 Buyer collected P234,000 during August after allowing for P9
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.
Seller Corp. factored P400,000 of accounts receivable with Buyer, Inc., on a without-recourse basis. The factor charge was 1.75% of the amount of receivables, and an additional 4% was retained to cover probable adjustments. In addition to the factor charge, a finance charge was withheld equal to 12% annually for any amounts advanced prior to the due dates of the receivables. This charge was based on 100% of the face value. The average credit term was 30 days from the date of transfer. According to the terms of the factoring agreement, Seller was to handle returned goods, allowances, and shipping disputes. Buyer was to collect the cash and acknowledge sales discounts, but such discounts were to be charged to Seller. Credit losses were to be absorbed by Buyer. Seller has not recorded any
Aug. 1 The receivable records were transferred to Buyer.
31 Buyer collected P234,000 during August after allowing for P9,000 of sales discounts. Sales returns and allowances during August totaled P2,400.
2
A
B
Sept. 20 Buyer wrote off a P2,000 account after learning of the company's bankruptcy.
30 Buyer collected P151,720 during September. Sales returns and allowances during September totaled P880.
Oct. 10 Seller and Buyer made a final cash settlement.
Which statement is incorrect?
A. This transaction is best described as a sale of Seller's accounts receivable to Buyer with the risk of uncollectible accounts transferred to Buyer.
B. The net cash proceeds ultimately realized by Seller from the factoring is P376,720.
C. The factor's net income from the factoring is P9,000.
D. The Seller received P1,720 as final settlement from the factor.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
