Where is the proper place on the Balance Sheet for the GL account of Factored Receivables.
Contra-Receivable or Short Term Lilablity?
Balance Sheet Presentation
Answers
Thomas,
It is a contra-asset account; otherwise your net-AR will appear overstated. DR: CASH, CR: Contra Asset
It's a short-term liability. Consider what happens if the invoice is not collected before 120 days (or the contractual max): You need to re-pay the factoring company -- CR Cash, DR Factoring Debt + Fees -- You're NOT re-instating an uncollected AR.
It depends whether the factoring is recourse or non-recourse. This means that if the debtor does not pay, can the factoring company come back to you for reimbursement thus you have the bad debt or is the factoring company stuck with the bad debt. You will have to read deep into the fine print to find out under what circumstances the factoring company can put the receivable back on you.
So if it is a true sale then net the AR. If the receivable can come back to haunt you then it is a short term debt.
Factoring arrangements are usually funding arrangements - financing - and should be reflected as a liability. Sales without recourse are sales more than factored amounts.
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Accounting