When a company sells its receivables to another entity with recourse, the requirement to buy back uncollectible accounts is called an):
A)bad debt expense.
B)estimated liability.
C)commitment.
D)contingent liability.

Question

Quizplus · Accepted Answer

The requirement to buy back uncollectible accounts is a contingent liability because it is a potential obligation that will only arise if a specific event occurs (i.e. the account is uncollectible). With recourse means that the selling company is still responsible for the collectability of the receivables, making it a contingent liability.

When a Company Sells Its Receivables to Another Entity with Recourse