Question

A company factored $30,000 of its accounts receivable and was charged a 2% factoring fee. The journal entry to record this transaction would include a debit to Cash of $30,000, a debit to Factoring Fee Expense of $600, and credit to Accounts Receivable of $30,600.
a. True
b. False

Answer 1

Answer:

False

Explanation:

Given that,

Accounts receivable = $30,000

Factoring fee charged = 2%

Therefore,

Factory fee = 2% of Accounts receivable

                   = 2% × $30,000

                   = $600

The amount $600 has to be subtracted from the accounts receivable.

Hence, the journal entry is as follows;

Cash A/c ($30,000 - $600) Dr. $29,400

Factory fee Expense A/c     Dr. $600

      To Accounts Receivable                     $30,000

(To record the account receivable)