jervis sells $4,500 of its accounts receivable to northern bank in order to obtain necessary cash. northern bank charges a 3% factoring fee. what entry should jervis make to record the transaction?

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28-10-2022
Business

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jervis sells $4,500 of its accounts receivable to northern bank in order to obtain necessary cash. northern bank charges a 3% factoring fee. what entry should jervis make to record the transaction?

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SidHussain SidHussain · Answer 1 · 2022-10-31T12:37:33-04:00

The entry Jervis should make to record the transaction is C. Debit Cash $4,365; debit Factoring Fee Expense $135; Credit Accounts Receivable $4,500

The selling of debt or the factoring of debt is a term that describes the selling of the claims to accounts receivables to a third party against instant cash. The factoring firm which in this case is the northern bank generally charges a certain fee known as a factoring fee and only pays a certain percentage of cash to the selling firm.

The factoring fee in this case can be calculated as follows;

factoring fee = 3% of $4,500

factoring fee = 3/100 × 4,500

factoring fee = 0.03 × 4,500

factoring fee = $135

The amount of cash that will be received can be calculated as follows;

cash = $4500 - $135 = $4365

Therefore the entry Jarvis should make to record the transaction is;

Debit Cash = $4,365

Debit Factoring Fee Expense = $135

Credit Accounts Receivable = $4,500

Although a part of your question is missing, you might be referring to this question:

Jervis sells $4,500 of its accounts receivable to Northern Bank in order to obtain the necessary cash. Northen Bank charges a 3% factoring fee. What entry should Jervis make to record the transaction?

A. Debit Accounts Receivable $4,500; credit Factoring Fee Expense $135; credit Cash $4,365

B. Debit Cash $4,500; credit Factoring Fee Expense $135; credit Accounts Receivable $4,500

C. Debit Cash $4,365; debit Factoring Fee Expense $135; credit Accounts Receivable $4,500

D. Debit Accounts Receivable $4,365; debit Factoring Fee Expense $135; credit Cash $4,500.

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