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18 April, 09:30

Wood Incorporated factored $150,000 of accounts receivable and Engram Factors Inc. on the without recourse basis. Engram assesses a 2% finance charge of the amount of accounts receivable and retains an amount equal to 6% of accounts receivable for possible adjustments. Prepare the journal entry for Wood Incorporated and Engram Factors to record the factoring of the accounts receivable to Engram.

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  1. 18 April, 11:50
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    Wood (without recourse)

    DR. Cash $138,000

    DR. Due from Factor $9,000

    CR. Loss on Sale of Receivables $3,000

    CR. Accounts Receivable $150,000

    Engram (without recourse)

    Accounts Receivable $150,000

    Due to Customer (Wood) $9,000

    Interest Revenue $3,000

    Cash $138,000

    Explanation:

    In case of sale of receivables without recourse Loss on the sale is financial charges only which is given and cash recived is the net of Net book value, financial charges and amount due from factor.

    In case of sale of receivables with recourse Loss on the sale is financial charges and any recourse obligation and cash recived is the net of Net book value, financial charges and amount due from factor.

    Due from Factor = 6% X $150,000 = $9,000

    Loss on Sale of Receivables = 2% X $150,000 = $3,000
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