Disposition of Notes/accounts
7 important questions on Disposition of Notes/accounts
Accounts and Notes Receivable: Disposition
-How to solve this problem:
- Find a rich relative or friend to give you cash outright.
- Sell your receivables to a 3rd party
- Take out a loan
Disposition- Sales of Receivables
- Factors: Companies that buy receivables for a fee
- & then collect the payments directly from customers.
Sales of Receivables: Sale without Recourse; Definition
-Transfer is outright sale of receivable (transfer of title)
-Seller records loss on sale
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Sale of Receivables: Sale with Recourse; Definition
- i.e., recognize recourse liability (JE) related to possible losses on uncollectible accounts
How to find loss on sale of receivables if not given
How the JE for buyer looks with or without recourse
CR Due to customer (Receivables from factor)
CR Interest Revenue (Loss on sale of receivable - Recourse Liability)
CR Cash(Plug)
Accounts Receivable Turnover
- Measures the # of times, on average, a company collects receivables during the period.
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