University - Year 2

Accounting

EXERCISE 6

Generous Company provided the following information with respect to factoring of

accounts receivable.

JUL 1 Factored P800,000 of accounts receivable without recourse with a bank

on notification basis.
The bank charged a factoring fee of 5% of the amount of accounts
receivable factored and withheld 10% of the accounts receivable factored
to cover sales return and allowances.
Jul-01 Cash 680,000
Service charge (5% x 800,000) 40,000
Receivable from factor (10% x 800,000) 80,000
800,00
Accounts receivable 0
JUL 15 Received notice from the bank that factored accounts are fully collected
less sales return and allowances of P20,000.
Jul-15 Sales return and allowances 20,000
Receivable from factor 20,000
JUL 31 Received a check from the bank as a final settlement of the factoring
contract.
Jul-31 Cash (80,000 - 20,000) 60,000
Receivable from factor 60,000
Required: Prepare journal entries to record the transactions.