Freelance Factors provides financing to other companies by purchasing their accounts receivable on a non-recourse basis. Freelance charges commission to its clients of 15% of receivables factored. In addition, Freelance withholds 10% of receivables factored as protection against sales returns and other adjustments. Freelance credits the 10% withheld to Client Retainer and makes payments to clients at the end of each month so that the balance in the Retainer account is equal to 10% of the unpaid receivables at the end of the month. Freelance recognizes its 15% commissions as revenue at the time the receivables are factored. Also, experience has led Freelance to establish an Allowance for Bad Debts of 4% of all receivables purchased. On January 2, 2021, Freelance purchased receivables from Committed Company totaling P1,500,000. Committed had previously established an Allowance for Bad Debts for these receivables of P35,000. By January 31, 2021, Freelance had collected P1,200,000 on these receivables. What amount of loss on factoring should Committed Company recognize on the sale of its receivable?
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.
Freelance Factors provides financing to other companies by purchasing their accounts receivable on a non-recourse basis. Freelance charges commission to its clients of 15% of receivables factored. In addition, Freelance withholds 10% of receivables factored as protection against sales returns and other adjustments. Freelance credits the 10% withheld to Client Retainer and makes payments to clients at the end of each month so that the balance in the Retainer account is equal to 10% of the unpaid receivables at the end of the month. Freelance recognizes its 15% commissions as revenue at the time the receivables are factored. Also, experience has led Freelance to establish an Allowance for
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