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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Discuss the difference between a secured borrowing (pledging or assigning) and a sale of receivables (factoring).

To determine

Explain the difference between the secured borrowing (pledging or assigning) and a sale receivables (factoring).

Explanation

Account receivable:

The amount of money to be received by a company for the sale of goods and services to the customers is referred to as account receivable.

Secured borrowing (pledging and assigning):

  • When a company makes a secured borrowing, the company will assign or pledge its accounts receivable as collateral for a loan.
  • If a company is unable to pay the loan, the creditor will can collect the amount from the accounts receivable that are used to repay the amount owed.
  • In a secured borrowing, the proceeds from the transfer of financial assets are recorded as liability, with the difference between the cash received and the amount borrowed recorded as service charge and interest accrued is recorded in the same manner...

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