A company factored $45,000 of its accounts receivable and was charged a 4% factoring fee. The journal entry to record this transaction would include a:

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05-08-2020
Business

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A company factored $45,000 of its accounts receivable and was charged a 4% factoring fee. The journal entry to record this transaction would include a:

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Shahzaibfaraz Shahzaibfaraz · Answer 1 · 2020-08-10T03:23:24+02:00

The question is incomplete as it is missing the options. The complete question is,

A company factored $45,000 of its accounts receivable and was charged a 4% factoring fee. The journal entry to record this transaction would include a:

a. Debit to Cash of $45,000 and a Credit to Account Receivable of $45,000

b. Debit to Cash of $46,800 and a Credit to Account Receivable of $46,800

c. Debit to Cash of $45,000 and a Credit to Notes Payable of $45,000

d. Debit to Cash of $45,000, a Debit to Factoring Fee Expense of $1800, and Credit to Account Receivable of $43,200

e. Debit to Cash of $43,2000, a Debit to Factoring Fee Expense of $1,800, and Credit to Account Receivable of $45,000

Answer:

The correct answer is option e.

Explanation:

Factoring accounts receivables means selling the claims on accounts receivables to a third party in exchange of cash. Such factoring is done to receive payment for these accounts receivables instantly and selling the claims to some other company. The factoring company charges a certain portion of accounts receivable as fee and only provides cash after deducting this percentage. This fee is an expense for a company using factoring service and is debited.

So the general entry to record factoring would be,

Cash 43200 Dr

Factoring fee 1800 Dr

Accounts receivables 45000 Cr

Cash = 0.96 * 45000 = 43200

Factoring fee = 45000 * 0.04 = 1800