Selling receivable before its maturity date to financial institutions or factoring companies is one of the company’s strategies to obtain an immediate cash and make company’s operating cycle becomes shorter. For providing this service, the financial institution or factoring company requires a compensation such as interest, commission fee, and other requirements to secure the transaction. Consequently, the amount of money received by the company, as a seller or transferor, less than the face value of the account receivable, or it purchases at discount. Selling receivable transaction can be executed either without recourse in which the transferor has no obligation for uncollectible receivables or with recourse in which the transferor has full responsibility for any uncollectible receivables. Generally, Accepted Accounting Principle (GAAP) classify selling receivable transaction in the category of transfer of financial assets, and it is regulated more detail in FASB codification, ASC 860 about transfer and servicing. ASC 860-10-05-4 mentions that recourse arrangement is one of the instances where …show more content…
Transfer consists of a whole financial asset or a group of entire financial assets. A transferor of group financial assets or groups of entire financial assets may retain a recourse obligation when the debtor failure to make payments when it is due. Before the entity determines the appropriate accounting treatment, the entity should make sure that the transferred asset has been isolated. It means the transferor, its affiliates and its creditor will not be able to access the asset. Hence, if the conditions in paragraph 860-10-40-5 are met, a transfer of whole receivables with recourse shall be recognized as a sale. Recourse obligations related to this transaction should be recognized as a liability at fair value at the transfer date. If the transfer fails to meet any criteria for sale accounting stipulated in ASC 860-10-40-5, it shall be accounted as a secured
First, when a creditor (ICE) extends credit to a debtor (Top Quality) and takes a security interest in some property of the debtor, Top Qualities inventory in this case, it is called a secured transaction. The inventory is then considered collateral for the financing that ICE provided for Top Quality, which was made clear in the financing statement that ICE filed. Any secured transactions where personal property is used as collateral is governed by Article 9 of the Uniform Commercial Code. The UCC was revised in 2001 to better adhere to modern times, and since this case took place from 2007 to 2009, we will be applying the revised edition. There are many sections of Article 9 that should be considered when examining this case. First, the filing of a financing statement, form UCC-1 in Article 9, should be confirmed as filed with the appropriate state office. Once this has been done, confirming the attachment of Top Quality’s inventory to ICE, we can then look to confirm that the initial sale to Chrisman was paid in full to Top Quality, which it was. If this were not the case, ICE would be entitled to the remaining sale proceeds. Now we move on to the requirements of a buyer in the ordinary course of business, per Article 9 of the UCC. According the textbook, “A buyer in the ordinary course of business who purchases goods from a merchant takes the goods free of any perfected or unperfected security interest in the merchant’s inventory, even if the buyer knows of the existence of the security interest” (Cheeseman). The textbook then continues to explain that this rule is necessary because buyers would be reluctant to purchase goods if the merchant creditors could recover the goods if the merchant defaulted on the loans owed to secured creditors. These statements come from the Revised Article 9, section 320(a). This is based on the idea that the buyer purchases in good faith, meaning that they are
ARB43, Ch.4, Par.9 ?Where evidence indicates that cost will be recovered with an approximately normal profit upon sale in the ordinary course of business, no loss should be recognized...?
Accounts receivable ending balance= Beginning balance +sales on Account - cash receipts -sales returns and allowances- charge of uncollectible account
Palgo Holdings Pty Ltd carried on a business of making small secured loans. Each borrower would sign a two-part document. The first part of the document, titled “Secured Loan Agreement”, recorded the amount of the loan and the date on which the principal and interest was due. The second part of the document, titled “Bill of Sale/Goods Mortgage”, was made as a deed between the borrower as mortgagor and the lender as mortgagee. It also recorded that the terms of the bill of sale were set out in the schedule of terms attached.
(i) in the case of the property relinquished in the exchange, the 2-year period ending on the date of such relinquishment, and
Accounts Receivable has good separation of duties and strong internal controls such as control numbers and reconciliations to sales and bank statements. One weakness in the Accounts receivable system is the accounting supervisor approves summary entries and reconciles the general ledger account, which could indicate a weakness with segregation of duties. We recommend that the controller approves of summary entries to segregate these duties.
On May 28, 2014, the Financial Accounting Standard Board and the International Accounting Standard Board issued ASC 606, Revenue From Contracts With Customers. The new standard will affect all entities including public, private, and not-for-profit that enter into contracts with customers that involve goods and services being transferred. It also effects contracts that transfers nonfinancial assets unless within the scope of other standards such as leases and insurance contracts. The main purpose of the standard is that involved party should recognize revenue that reflects the transfer of the good and services in an amount equivalent to they expect to receive in exchange for the goods and services. There are five steps to explain how the ASC 606 Standard works. The first step is to identify the contract with
The billing process is important because is crucial in maintaining the financial stability, the hospital must have an efficient process for obtaining reimbursement from patients and third-party payers. Alongside the billing process Accounts Receivable (A/R) Management is responsible for monitor outstanding accounts from patients the government, and other payers to ensure that payments are received in a timely manner.
Twomey, D. P., & Jennings, M. M. (2013). Transfers of Negotiable Instruments and Warranties of Parties. In Business Law: Principles for Today's Commercial Environment: Southern New Hampshire University (4th ed., pp. 556-577). Mason, OH: Cengage Learning.
When analyzing Apple’s Accounts Receivable Turnover Ratio, the ratio is lower than the average industry. The ratio shows 11.96 times in account receivable collections during the year and how efficiently Apple uses its assets (Miller-Nobles, Mattison and Matsumura 781-782). Account receivable collections will increase after the release of the iPhone 6 and iPhone 6Plus by mid-September. Therefore, increasing the ratios of account receivable turnover and inventory turnover.
Under the revised standard, “a disposal of a component of an entity or a group of components of an entity shall be reported in discontinued operations if t...
· There is the possibility of the supplier integrating forwards in order to obtain higher prices and margins. This threat is especially high when
LC is the issuing bank guaranteeing payment to our collections agent in a timely mannerly with the sated amount price. However, as an exporter [seller] of the goods, before, the international sales contract required to be established with an outright agreement, we shall proceed with the terms and conditions with the transaction schedule of the contract executing the stating price, delivery conditions, means of payment, and delivery period.
Cash is disbursed for a variety of reasons, such as to pay expenses and liabilities or to purchase assets. Generally, internal control over cash disbursement is more effective when payments are made by cheques rather than by cash, except for incidental amounts that are paid out of petty cash. Payments are made by cheques generally only after specified procedures have been followed. In addition, the paid cheques provide proof of payment. (Kloot and Sandercok 1991)
The funds are provided exclusively up to the amount covered by the respective liability. Maximum maturity of the credit is a function of the maturity of the underlying liability. In the case of delivery transactions the maximum repayment periods are governed by the rules of the OECD Arrangement depending on the country category of the recipient country. Refinancing may be provided for maturities of up to 10 years. Repayment usually starts no later than six months after the starting point of credit (e.g. the date of shipment or acceptance of the goods) and is made no less frequently than every six months in equal installments.