Asked by Madison Bradford on May 18, 2024
Verified
A company factored $45,000 of its accounts receivable and was charged a 3% factoring fee. The journal entry to record this transaction would include a:
A) Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,350, and credit to Accounts Receivable of $43,650.
B) Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.
C) Debit to Cash of $43,650, a debit to Factoring Fee Expense of $1,350, and a credit to Accounts Receivable of $45,000.
D) Debit to Cash of $46,350 and a credit to Accounts Receivable of $46,350.
E) Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.
Accounts Receivable
Money owed to a business by its customers for goods or services delivered but not yet paid for.
- Comprehend the procedure and financial recording for the assignment of accounts receivable.
Verified Answer
BT
Brendon TownsMay 22, 2024
Final Answer :
C
Explanation :
When a company factored its accounts receivables, it received cash while giving up its rights to the amount factored, and the factoring company charges a fee for its services. The journal entry to record factoring involves debiting the Cash account for the amount received, debiting the Factoring Fee Expense account for the fee charged, and crediting the Accounts Receivable account for the amount factored.
In this case, the transaction involves factoring $45,000 of accounts receivables for a 3% fee, which amounts to ($45,000 x 3%) $1,350. Therefore, option C is the correct answer as it involves debit to Cash for $43,650 (i.e. $45,000 - $1,350), a debit to Factoring Fee Expense for $1,350, and a credit to Accounts Receivable for $45,000.
In this case, the transaction involves factoring $45,000 of accounts receivables for a 3% fee, which amounts to ($45,000 x 3%) $1,350. Therefore, option C is the correct answer as it involves debit to Cash for $43,650 (i.e. $45,000 - $1,350), a debit to Factoring Fee Expense for $1,350, and a credit to Accounts Receivable for $45,000.
Learning Objectives
- Comprehend the procedure and financial recording for the assignment of accounts receivable.
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