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11 July, 14:06

Kirk Furniture factors $800000 of receivables to Sulu Factors, Inc. Sulu Factors assesses a 4% service charge on the amount of receivables sold. Kirk Furniture factors its receivables regularly with Sulu Factors Factors. What journal entry does Kirk make when factoring these receivables?

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  1. 11 July, 17:28
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    The journal entry is shown below:

    Cash A/c Dr $768,000

    Service Charge Expense A/c $32,000

    To Accounts Receivable A/c $800,000

    (Being the cash is received and the remaining balance is debited to the cash account)

    The computation of the service charge expense is shown below:

    = Accounts Receivable * service charge percentage

    = $800,000 * 4%

    = $32,000
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