In recording the sale of accounts receivable, the commission charged by a factor is recorded as

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The commission charged by a factor is recorded as a Service Charge Expense because it is a fee that the company pays for the factor's services in collecting the accounts receivable. It is not a bad debt expense or a loss on the sale of receivables because the factor assumes the risk of collecting the accounts and any losses that may occur. It is also not a commission expense in the traditional sense because the factor is not acting as a sales agent for the company.

In Recording the Sale of Accounts Receivable, the Commission Charged