A company sells $800,000 of accounts receivable to a factor for cash less a 2% service charge. The entry to record the sale should not include a
A)debit to Interest Expense for $16,000.
B)debit to Cash for $784,000.
C)debit to Service Charge Expense for $16,000.
D)credit to Accounts Receivable for $800,000.

Question

Quizplus · Accepted Answer

The 2% service charge is already accounted for in the decrease in the accounts receivable balance. Therefore, there is no need to record an additional interest expense. The other options are all necessary to correctly record the sale.

A Company Sells $800,000 of Accounts Receivable to a Factor