PROBLEM 4 On May 1, Dexter, Inc. factored P1,200,000 of accounts receivable with Quick Finance on a without recourse basis. Under the arrangement, Dexter was to handle disputes conceming service, and Quick Finance was to make the collections, handle the sales discounts, and absorb the credit losses. Quick Finance assessed a finance charge of 6% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts. Instructions (a) Prepare the journal entry required on Dexter's books on May 1. (b) Prepare the journal entry required on Quick Finance's books on May 1. (c) Assume Dexter factors the P1,200,000 of accounts receivable with Quick Finance on a with recourse basis instead. The recourse provision has a fair value of P21,000. Prepare the joumal entry required on Dexter's books on May 1.
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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