Libby Inc. sold $500,000 of accounts receivable to Reliable Finance on a with recourse basis. Reliable Finance assesses a 4.5% finance charge on the amount of accounts receivable and retains an amount equal to 7% of accounts receivable for possible adjustments. Prepare the journal entries for Libby Incorporated and Reliable Finance to record the sale of the accounts receivable to Reliable Finance assuming that the recourse liability has a fair value of $16,000.
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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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