It is important to note that the receivables are not sold/transferred under an assignment agreement.
If the receivables have been transferred, the agreement would be of sale/factoring of accounts receivable.
He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own.
He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.
In the example below, Company A records the receipt of a $100,000 loan collateralized using accounts receivable, and the creation of notes payable for $100,000.
In specific assignments, the entries are more complex since the receivable includes accounts that are explicitly identified.
The cash advance less the initial fee charged by the lending company is recorded by debiting the Cash account for the amount of the loan less the initial fee, debiting the finance charge account for the amount of the initial fee, and crediting Notes payable by the amount of the loan, if the borrowing company issues a promissory note.
If the borrowing company signs a loan agreement instead of issuing a promissory note, the entry above should be changed as follows: When assigned accounts receivable is collected, it should be recognized by debiting the Cash account and crediting accounts receivable.
The assignment of accounts receivable should be reported in financial statements by recording all related transactions in the general journal.
The entry to recognize an assignment is recorded by debiting assigned accounts receivable and crediting accounts receivable for the amount of accounts pledged as collateral.