ACC 102 Receivable Financing

ACC 102
RECEIVABLE FINANCING
RECEIVABLE FINANCING- Ability of entity to raise capital by using receivables as collateral.
Forms of Receivable Financing:
a. Pledge of Accounts Receivable
b. Assignment of Accounts Receivable
c. Factoring of Accounts Receivable
d. Discounting of Notes Receivable
a. Pledge of Accounts Receivable
 Accounts receivable > as collateral = to secure loan.

 No journal entry
 Its transaction is recorded on Notes to financial statements.
Key words related to pledge of accounts receivable:
 Loan
 Terms of loan
a) Date of maturity of loan
b) Discount in P%
 Pledge of accounts receivable
*Take note that pledge of accounts receivable does not have a journal entry since there is no
transfer of money involved.
Illustration:
CASH Loan-DISCOUNT= CASH

DISCOUNT Loan* P%
NOTES PAYABLE Loan
Wherein: P% refers to percentage of discounted amount, when loan is paid in full before date of
maturity.
When loan is discounted:
Loan is deducted in advance
Key words:
 Straight-line method
 Discount on notes payable
 Amortized as interest expense (written off as an interest expense)
Face value of loan XXX

(Interest deducted in advance) (X)
= Net proceeds =XX
Illustration:
In order to remove discount on notes payable it is paid off in the form of interest expense.
Interest expense N
(Discount* )
Discount on notes payable M
(Loan*P%)
Wherein:
 P% is the rate of the discount in percentage form

 N refers to number of months paid off
 M refers to total number of months to pay off.
When loan is repaid before maturity:
Illustration:
There are 2 transactions that take place.
(Note: discount can only occur if entity has paid loan before maturity date.)
1. Recording payment of bank loan:
Notes payable-Bank XX
Cash XX
Loan is removed through debiting, cash is used to pay off loan.
2. Discount is amortized.
Interest expense XX
Discount on notes payable XX
b. Assignment of accounts receivable
Keywords:
Entity (Borrower)
Lender
Promissory note
Advance
Interest on unpaid loan
Entity (borrower) assigns right to transfer value of AR to lender to acquire a loan.
Two types of assignment:
a) Non-notification bias- AR customers not informed of their accounts assigned.
b) Notification bias- AR customers are informed, payment of AR goes directly to
assignee.
Conditions of Assignment:
Lender:
 only lends a certain percentage P% of the total face value of accounts receivable
for if not all AR can be received.
 Charges interest on loan
 Charges commission/for loan issuance.
NON-NOTIFICATION
Illustration:
1. In this illustration it records the assigned accounts receivable account, as you use
your accounts receivable as collateral for taking a loan.
Accounts receivable- Assigned XX

Accounts Receivable XX
2. In this illustration, it can be seen that both the loan and the commissions received
are recorded into 1 transaction.
Cash XX
Commission fee XX
Notes payable- lender XXXX
3. Transaction when one does not get the amount from the accounts receivable.
Customer returns order unsatisfied.
Sales Return XX
Accounts Receivable – Assigned XX
4. Transaction wherein one collects a certain amount from the customers assigned
accounts.
Cash XX
Sales Discount ( %* amount collected) X
Accounts receivable assigned XXX
Take note: sales discount is a contra-asset account that decreases the amount of
revenue.
5. Illustration that shows the entity paying a portion of its loan to the bank plus the
interest owed upon it.
Note Payable –(Loan + service charge) XX

Interest Expense-(%*notes payable) X
Cash XXX
6. Illustration shows a portion of the amount in the assigned accounts have been
proven worthless.
Allowance for doubtful accounts XX

Accounts receivable-assigned XX
7. Illustration shows the collection of assigned accounts.
Cash XX
8. Illustration shows paying off the rest of the loan plus additional interest.
Note Payable –(Loan + service charge) XX

Interest Expense- (%*notes payable) X
Cash XXX
9. Since one has already paid off the loan, the remaining pledged accounts receivable-
assigned amount is transferred to the accounts receivable account.
Accounts receivable XX
Factors that affect accounts receivable:
Total accounts Receivable XXXXXX

Less: Collections (X)
Sales Discount (X)
Sales Return (X)
Worthless Accounts (X)
Balance XX
NOTIFICATION
Key words:
1st: Getting the loan
 Assigned accounts receivable-

 Loans-
 Less service charge on gross amount assigned-
o Service charge on amount of Accounts receivable NOT loan.
 Interest-
o The interest per month is based on the Loan balance,
c. Factoring of Accounts Receivable
Factoring Assigning
Selling accounts receivable amount for Putting up AR as collateral for loan
needed cash.
Receives cash in return Receives loan in return
AR belongs to buyer now Residual AR value is transferred back to
entity’s AR accounts after debt has been paid.
d. Discounting of Notes Receivable

ACC 102 Receivable Financing

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ACC 102

Forms of Receivable Financing:

a. Pledge of Accounts Receivable

b. Assignment of Accounts Receivable

c. Factoring of Accounts Receivable

d. Discounting of Notes Receivable

a. Pledge of Accounts Receivable

 Accounts receivable > as collateral = to secure loan.

Key words related to pledge of accounts receivable:

CASH Loan-DISCOUNT= CASH

Loan is deducted in advance

Face value of loan XXX

 P% is the rate of the discount in percentage form

When loan is repaid before maturity:

There are 2 transactions that take place.

1. Recording payment of bank loan:

Accounts receivable- Assigned XX

Note Payable –(Loan + service charge) XX

Allowance for doubtful accounts XX

7. Illustration shows the collection of assigned accounts.

Note Payable –(Loan + service charge) XX

Total accounts Receivable XXXXXX

1st: Getting the loan

 Assigned accounts receivable-

c. Factoring of Accounts Receivable

d. Discounting of Notes Receivable

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