In recording the sale of accounts receivable, the commission charged by a factor is recorded as
A) Bad Debts Expense.
B) Commission Expense.
C) Loss on Sale of Receivables.
D) Service Charge Expense.

Question

Quizplus · Accepted Answer

The commission charged by a factor is a service charge expense and should be recorded as such. Option A, bad debts expense, is not applicable as the sale of accounts receivable is done to transfer the risk of bad debts to the factor. Option B, commission expense, is too general and does not specify that it is related to the sale of accounts receivable. Option C, loss on sale of receivables, is incorrect as the sale of accounts receivable should result in a gain, not a loss. Therefore, the best choice is D, service charge expense.

In Recording the Sale of Accounts Receivable, the Commission Charged