Which of the Following Is True When Accounts Receivable Are

question 90

Multiple Choice

Which of the following is true when accounts receivable are factored without recourse?

• A) The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables.
• B) The financing cost (interest expense) should be recognized ratably over the collection period of the receivables.
• C) The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables.
• D) The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of the transaction.

---

Definitions:

Revenues

Revenues are the total income earned by a company from its normal business activities, before any expenses are deducted.

Expenses

Costs incurred in the process of earning revenue, typically categorized as certain costs necessary to operate a business.

Assets Increase

A rise in the company's resources, resulting from transactions that bring future economic benefits to the entity.

Statement of Cash Flows

A financial statement that provides aggregate data regarding all cash inflows and outflows a company receives from its operational, investing, and financing activities.