Factoring

Question 1

Total cost of factoring AR?

Answer 1

Factoring fee plus interest

Question 2

How to get the amount of Loss on factoring of AR

Answer 2

Sales price less carrying amount of AR

Or face amount times finance charge

Note: CA of AR = face amount less allowance for bad debts

Question 3

Cash received from factoring

Answer 3

AR less Finance charge less Factor’s holdback

Question 4

Journal Entries

Answer 4

Books of seller of AR/Owner
Cash
Afda
Loss on factoring
Due from factor
           Accounts Rec'ble

Books of factor/financer/buyer
Accts. Rec'ble
            Cash
            Commission income
            Clients Retainer(Liab)

Question 5

How to get the amount of Loss on factoring of AR

Answer 5

Sales price less carrying amount of AR

Or face amount times finance charge

Note: CA of AR = face amount less allowance for bad debts

Question 6

Cash received from factoring

Answer 6

AR less Finance charge less Factor’s holdback

Question 7

Journal Entries

Answer 7

Books of seller of AR/Owner
Cash
Afda
Loss on factoring
Due from factor
           Accounts Rec'ble

Books of factor/financer/buyer
Accts. Rec'ble
            Cash
            Commission income
            Clients Retainer(Liab)