Question

On December 1, Altona Winery sells $100,000 of its accounts receivable and is charged a 5 percent factoring fee. Prepare the December 1 journal entry for Altona by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Answer 1

Answer:

The journal entry in respect of the factored debt is shown below:

Dr Cash                           $95,000

Dr Factoring cost              $5000

Cr Accounts receivable                  $100,000

Explanation:

The factoring of accounts receivable implies that a finance company known as factor takes responsibility for chasing debtors for payments in return for a 5% charge of the accounts receivable.

Since factoring transfers accounts receivable to factoring comparing, accounts receivable is credited with face value of the debt,an inflow of cash from the factor is debited to cash account while also debiting the difference debt and cash received to a factoring expense account.

This avails the company quick access to cash receivable later.