The postman withdraws cash from debtors when maturities approach. The procedure to be followed in a situation where a debt becomes uncollectible depends on whether or not the factoring agreement can resort. In the case of a factoring transaction, the value of the receivables is verified and the fees are agreed between the factoring and the seller. The factor then takes over the receivables at the same time as all the relevant statements and pays the cash to the seller after deduction of the agreed fees. In addition to this fee, the factor may also retain a small percentage of the receivables for a likely adjustment for discounts, yields and value adjustments. The amount deducted for such adjustments is normally refundable. With regard to non-recourse factoring, the seller makes the following entry: Factoring differs from a financing contract with assignment of receivables, since the subsequent receivable is used as collateral for a loan, but the actual ownership of the receivables and the right to collect them are not transferred as long as the loan and related interest payments are paid in a timely manner. Factoring helps a company improve its cash flow by immediately converting its receivables into cash instead of waiting for customer payments to mature. One of the disadvantages of factoring is that it is done with a discount, which means that the cash received during the factoring of receivables is less than the value of the transferred receivables. This is because the factor expects a certain margin and is exposed to risks such as the present value of the money and, according to the agreement, the risk of default by the debtors. Factoring companies apply a „factoring fee“.
The factoring fee is a percentage of the amount of receivables to be factored. The rate calculated by factoring companies depends on: the more the factoring company estimates that the receivables are recovered, the lower the factoring fee is essentially. Oh, my God, thank you for explaining it in a very simple way. Our teacher does not explain it well. Thank you! January 1, 20X5: Here, the entry of the newspaper will be identical both under factoring with the recourse and under factoring without recourse. In the case of non-recourse factoring, the factor may recognise any amount retained as security by any credit losses, but the factor is not entitled to reimbursement by the company of origin if the sum of the credit losses exceeds the amount of the guarantee. In other words, the additional loss due to debt losses in the context of non-recourse factoring is borne by the factor. Factoring of debiters can be performed without regression or regression.
Required: Pass log entries to record the above transactions for Impatient Inc. under recourse factoring and non-recourse factoring. Use the information in Example 1 and assume that factoring is regressed. If noor company estimates that the fair value of the undertaking to appeal is 750 $US, the journal entries to be accounted for by both companies are shown below: it is important to note that the nature of the factoring influences the amount of the fee collected and the level of security of the factor and that the scenario in this example serves only to compare the two types. The amount of the security retained may be zero in the case of factoring, as the agreement guarantees the repayment of all debts that may prove to be uncollectible. December 31, 20X5: The journal entries are different from the two types of factoring….