Relates to

Nature
Whether or Not Accounts
Receivable is Derecognized

Journal Entries

Pledge
Accounts Receivable
Collateral Security; All accounts
Receivable
No derecognition; only
disclosures
There is derecognition if
collections

Discount
Notes Receivable
Sale of Notes Receivable

Record only the loan:

DR: CASH
DR: Discount on NP (if
discounted)
CR: Notes Payable

Endorsement, with recourse:

Endorser shall pay the endorsee if the maker
dishonors the notes
Records Contingent Liability
Accounted either as Conditional Sale or Secured
Borrowing

There is derecognition.
Except for Secured borrowing.

If Conditional Sale,
DR: CASH
DR:Loss on NR Disc.
CR: NR
CR: Int. INC.
NR Disc. Deducted from NR with disclosure for
Contingent Liability
If Secured Borrowing, not derecognized
DR: CASH
DR:Loss on NR Disc.
CR:Liabilty for NR disc.
CR: Int. INC.
Endorsement without recourse: Absolute sale, No
contingent liability
DR: CASH
DR:Loss on NR Disc.
CR: NR
CR: Int. INC.

Assignment
Accounts Receivable
Collateral Security; Specific
Accounts Receivable
No Derecognition; However, it
shall be reclassified to ARAssigned.
There is derecognition if
collections
To separate the assigned
accounts:
DR: AR-assigned
CR: AR
To record the Loan
DR: CASH
DR: Service charge
CR: NP-Bank
If Nonnotification: we collect the
AR, hence there is collection of
Cash before payment to bank.
If Notification: customers are
notified that accounts are
assigned, Bank collects the AR.

Factor
Accounts Receivable
Sells the Accounts Receivable
There is Derecognition.
Ownership is transferred to the
Bank.
2 forms of Factoring:
1. Casual Factoring
Factor some or all of its AR at a
substantial Discount
To record:
DR: Cash
DR: Allowance for DA
DR: Loss on factoring
CR: AR
2. Continuing agreement
Finance entity purchases all of the
AR of a certain entity.
DR: CASH
DR: Sales discount
DR: Commission
DR: Receivable from Factor
CR: AR