Factored Receivables

Definition: Receivables sold to a factor

Scope:NarrowDifficulty:Difficult

Receivables sold to a factor

Common Journal Entries
AccountDebitCredit
1. Factor without recourse
Sell $50,000 A/R; 3% fee ($1,500).
CashAsset+$48,500
Loss on Sale of ReceivablesExpense+$1,500
Accounts ReceivableAsset−$50,000
True sale; factor assumes all credit risk.
2. Factor with recourse
Same $50,000; 3% fee + $1,000 recourse obligation.
CashAsset+$48,500
Loss on Sale of ReceivablesExpense+$2,500
Accounts ReceivableAsset−$50,000
Recourse LiabilityLiability+$1,000
Seller retains some credit risk via recourse liability.

T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.

CashAsset account. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$48,500.00
$48,500.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$97,000.00
Loss on Sale of ReceivablesLoss on Sale of ReceivablesExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$1,500.00
$2,500.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$4,000.00
Accounts ReceivableAsset account — amounts owed by customers. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$50,000.00
$50,000.00
$100,000.00
Recourse LiabilityRecourse LiabilityLiabilityAn obligation the business owes to others. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$1,000.00
Normal bal. ▶
$1,000.00
DurationShort-Term

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