Asked by ERICA ROSENBAUM on May 23, 2024
Verified
Which of the following conditions must be met by a company (the transferor) to record the transfer of accounts receivable for which it surrenders control to another company as a sale?
A) The transferred assets have been isolated from the transferor (i.e., put beyond the reach of the transferor) .
B) The transferee obtains the right to exchange (e.g., sell) the transferred assets.
C) The transferor does not maintain effective control over the transferred assets through an agreement that entitles and obligates the transferor to repurchase the transferred assets before their maturity.
D) All of these conditions must be met.
Transfer of Accounts Receivable
The process of selling or assigning the right to collect on outstanding invoices to another party.
Transferee
An individual or entity that receives the transfer of assets, rights, or interests from another party.
Transferor
The entity or person that transfers assets, obligations, or rights to another party.
- Gain an understanding of how sales of accounts receivable are recorded in accounting, considering both factoring and assignment, and the resulting implications for financial statements.
Verified Answer
ZB
Zahraa BadinMay 27, 2024
Final Answer :
D
Explanation :
All of these conditions must be met for a company to record the transfer of accounts receivable for which it surrenders control to another company as a sale. The transferred assets must be isolated from the transferor, the transferee must obtain the right to exchange the transferred assets, and the transferor must not maintain effective control over the transferred assets through an agreement that entitles and obligates the transferor to repurchase the transferred assets before their maturity.
Learning Objectives
- Gain an understanding of how sales of accounts receivable are recorded in accounting, considering both factoring and assignment, and the resulting implications for financial statements.
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