Pledged Receivables
Definition: Receivables used as collateral
Scope:NarrowDifficulty:Moderate
Receivables used as collateral
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Borrow using A/R as collateral | ||
| Bank lends $40,000 secured by $50,000 of A/R. | ||
| CashAsset+ | $40,000 | |
| Notes PayableLiability+ | $40,000 | |
| Pledging is disclosed in notes, not journalized separately. | ||
| 2. Collect pledged receivable | ||
| Customer pays the $50,000. | ||
| CashAsset+ | $50,000 | |
| Accounts ReceivableAsset− | $50,000 | |
| Cash may be restricted for loan repayment. | ||
| 3. Repay loan | ||
| Repay $40,000 plus $600 interest. | ||
| Notes PayableLiability− | $40,000 | |
| Interest ExpenseExpense+ | $600 | |
| CashAsset− | $40,600 | |
| Liability cleared; pledged receivables released. | ||
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.
$40,000.00
$50,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$40,600.00
$49,400.00
Notes PayableNotes PayableLiabilityAn 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.
$40,000.00
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$40,000.00
Normal bal. ▶
$0.00
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
Interest ExpenseExpense account — cost of borrowing money. Debits increase the balance. Credits decrease the balance.ExpenseA 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.
$600.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$600.00
DurationShort-Term
Related Subjects
Related
- Accounts ReceivableA/R is the asset being pledged
- Notes ReceivableNotes receivable can also be pledged as collateral
Contrast
- Factored ReceivablesPledging uses receivables as collateral; factoring sells them
See Also
- Non-Trade ReceivablesPledging creates a financing relationship, not a trade one
External Links
- Collateral (finance) — Wikipedia