Armistad Inc. wishes to speed up cash flow and contacts Free Cash.com to sell $600,000 in Accounts Receivable, receiving 98% in cash for the receivables. Armistad should debit cash for $588,000, debit Financing Expense for $12,000, and credit Accounts Receivable for $600,000.

Question

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This is the correct journal entry for selling $600,000 in Accounts Receivable to Free Cash.com at a 98% discount. The debit to cash is for the amount of cash received, the debit to Financing Expense is for the discount or fee paid to Free Cash.com, and the credit to Accounts Receivable is for the amount of receivables sold.