A company factored $45,000 of its accounts receivable and was charged a 4% factoring fee. The journal entry to record this transaction would include a:
A)Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,800, and credit to Accounts Receivable of $46,800.
B)Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.
C)Debit to Cash of $43,200, a debit to Factoring Fee Expense of $1,800, and a credit to Accounts Receivable of $45,000.
D)Debit to Cash of $46,800 and a credit to Accounts Receivable of $46,800.
E)Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.

Question

Quizplus · Accepted Answer

When a company factors its accounts receivable, the factoring company typically charges a percentage of the total amount as a factoring fee. In this case, the factoring fee is 4% of $45,000, which comes out to $1,800.

The journal entry to record this transaction would involve recording the cash received from the factoring company, as well as the reduction in accounts receivable and the expense of the factoring fee.

The correct journal entry is:

Debit Cash $43,200 
Debit Factoring Fee Expense $1,800 
Credit Accounts Receivable $45,000

This entry recognizes the factoring fee as an expense, reduces the accounts receivable by the amount factored, and records the cash received from the factoring company.

A Company Factored $45,000 of Its Accounts Receivable and Was