A company factored $45,000 of its accounts receivable and was charged a 4% 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 $1,800,and a credit to Accounts Receivable of $46,800.
B) Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.
C) Debit to Cash of $43,200,a debit to Factoring Fee Expense of $1,800,and a credit to Accounts Receivable of $45,000.
D) Debit to Cash of $46,800 and a credit to Accounts Receivable of $46,800.
E) Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.

Question

julius goddard · Accepted Answer

Final Answer : C, Explanation :  Factoring fees are an expense incurred by the company, thus it should be debited to Factoring Fee Expense. The cash received from factoring accounts receivable will be less than the actual accounts receivable due to the factoring fee charged by the factor. Therefore, the company will receive $43,200 (which is $45,000 minus 4% of $45,000) in cash and should be debited to Cash. The initial accounts receivable of $45,000 should be credited to Accounts Receivable. Therefore, the correct journal entry would be:Debit Cash $43,200Debit Factoring Fee Expense $1,800Credit Accounts Receivable $45,000

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