Which of the Following Statements About Factoring Is True

question 96

Multiple Choice

Which of the following statements about factoring is true?

• A) The firm, not the factor, bears the risk of collecting bad receivables in a factoring arrangement.
• B) Factoring involves the outright sale of a firm's accounts receivable to the factor.
• C) The borrowing firm is able to obtain a greater advance against inventory in a factoring arrangement than in a typical line of credit secured by accounts receivable.
• D) Factoring firms sell the receivables of other firms.

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Definitions:

Adjusting Entries

Journal entries made at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred, ensuring the accounts reflect these adjustments before financial statements are prepared.

Asset Balances

The value of different types of assets that a company owns, as recorded in the balance sheet at a particular point in time.

Liability Balances

The amount of money a company owes to creditors or other parties, reflected in its balance sheet.

Adjusted Trial Balance

A list of all accounts and their balances after adjusting entries have been made, used for preparing financial statements.