Furthermore, another problem that comes with higher receivables is that of bad debts. The main reason for this is that while receivables do result in future cash flows to the business, they still take some time. First of all, when businesses allow their customers with better credit sales terms, it may create cash flow problems for the business. While making credit sales can be highly beneficial for businesses as it allows them to increase their sales significantly, it may also come with some problems. Other factors may include working capital policies, financing costs and costs of credit control. Similarly, it may also depend on the demand for the products of the business. For example, it may depend on the credit terms of the industry or competitors of the business. Different factors influence these policies. Usually, businesses will have credit policies that will influence their account receivable balances. *Please be aware that your business absorbs the cost of sales discounts, sales returns and allowances, and any uncollectible accounts.The accounts receivable balance of business represents all its credit sales to customers for which it hasn’t received cash. Factoring Transactions Bookkeeping Step Threeįinal Settlement of the account between Your Business and the Factoring Company on January 31stįinally, in Step Three the Factoring Company has collected final payment for all receivables sold by Your Business in Step One.Īt settlement the Factoring Company will remit, in cash, the remainder of the liability account, due your business less any applicable fees.Īccordingly, Your Business will increase/debit cash for the remainder distributed by the Factoring Company and reduce/credit the asset account, “due from factor”, by the same dollar amount that the cash account was increased or debited. The actual make up of fees charged to Your Business by the Factoring Company are specific to the terms of the contract entered into between you and the factor and they are out of the scope of this article. In Step Two Your Business will reduce the asset account “Due from Factor” by a total of $6,000 which results from sales discounts of $5,000 taken by customers of your business and from $1,000 in fees charged to Your Business by the Factoring Company. Transactions during January result in cash collections of $90,000, sales discounts of $5,000 and factoring fees of $1000. Factoring Transactions Bookkeeping Step Two This amount represents the Reserve amount established with the Factoring Company ($100,000 * 20% Reserve Requirement). The receivable accounts you just sold to the Factor are now owned by the Factoring Company.Īs a result your accountant/bookkeeper will take the receivables off of your books with a credit entry for the gross amount of receivables sold to the Factoring Company.įurther, Your Business will record an asset account named “Due from Factor” for $20,000 at the time receivables are sold to the Factoring Company. In first step Your Business will receive $77,000 in cash from the Factoring Company and record a “Loss on the Sale” of the receivables in the amount of $3,000 as result of the initial 3% financing fee charged by Factoring Company on the total amount of the gross receivables purchased.
Sales Discounts= $5,000 during the cash collectionįactoring Transactions Bookkeeping Step One.In the process of collecting cash, the Factoring Company acknowledges sales discounts but charges the cost of acknowledged sales discounts to the asset account, “Due from Factor”.Your Business handles all returned goods, allowances, and disputes concerning shipments and products sold to customers.Your accountant will record this account on your company’s books as an asset account called “Due from Factor”. The Factoring Company will retain 20% of the gross accounts receivable purchased as a reserve account.The Factoring Company assesses a finance charge of 3%.As part of the contract made between Your Business and the Factor you agree to the following.
0 kommentar(er)
