Princess EJ Corporation factors P350,000 of accounts receivable with XYZ Financing on a with recourse basis. XYZ Financing will collect the receivables. The receivables records are transferred to XYZ Financing on August 15, 202X. XYZ Financing assesses a finance charge of 2% of the amount of accounts receivable. Also, it reserves an amount equal to 5% of accounts receivable to cover probable adjustments. Requirements: 1. What conditions must be met for a transfer of receivables through factoring with recourse? 2. Prepare the journal entry on August 15, 202X, for Princess EJ Corporation to record the conditional sale of receivables.
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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.
Princess EJ Corporation factors P350,000 of
basis. XYZ Financing will collect the receivables. The receivables records are transferred to XYZ
Financing on August 15, 202X. XYZ Financing assesses a finance charge of 2% of the amount of
accounts receivable. Also, it reserves an amount equal to 5% of accounts receivable to cover probable
adjustments.
Requirements:
1. What conditions must be met for a transfer of receivables through factoring with recourse?
2. Prepare the
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