Which of the following is true when accounts receivable are factored without recourse? a. The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of the transaction. b. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables. c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables. d. The financing cost (interest expense) should be recognized ratably over the collection period of the receivables.

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Business

Santiago Simpson

24 November, 23:22

Which of the following is true when accounts receivable are factored without recourse? a. The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of the transaction. b. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables. c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables. d. The financing cost (interest expense) should be recognized ratably over the collection period of the receivables.

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Ayana Yu · Answer 1

c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables.

Explanation:

Recourse: The company who is selling the accounts receivable promise that will buy back any uncollected invoices. The risk for uncollected invoices stays with the firm. Only the effort to collect is being passed.

f there is no recourse, when the clients accounts debtors defaults the lender assumes the losses.

Because of this, factoring without recourse usually is more expensive than without.