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Accounting for purchased receivables
Posted by hannah_vick on 07/11/2008 - 10:52
I am a new graduate who is employed with a small real estate appraisal business doing their accounting work. We recently enrolled in a business managment program in which we sold our receiveables. It is an ongoing process where we send them our weekly invoices in exchange for upfront payment that essentially functions like a line of credit. My question is about how to treat the weekly deposits from the sale. Here's my train of thought: It isn't income yet because if the invoices are not paid we're liable for reimbursement, but it shouldn't be treated as a payable like a normal line of credit either. If anyone who has dealt with situation has any ideas, I would really love to hear from them!! Thanks!
Hannah Vick, BA, Georgia
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Factoring
What you are doing is called factoring of receivables, which is really common in apparel companies. Your borrowings from the factoring agent should be treated as cash increases and an increase to a line item called "amount due to factor." There is a lot of guidance on factoring receivables out there. Take a look at SFAS 125.