A company factored $45,000 of its accounts receivable and was charged a 4% factoring fee. The journal entry to record this transaction would include a:
A) Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,800, and a credit to Accounts Receivable of $46,800.
B) Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.
C) Debit to Cash of $43,200, a debit to Factoring Fee Expense of $1,800, and a credit to Accounts Receivable of $45,000.
D) Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.
E) Debit to Cash of $46,800 and a credit to Accounts Receivable of $46,800.

Question

Quizplus · Accepted Answer

When a company factored $45,000 of its accounts receivable and was charged a 4% factoring fee, the following journal entry would be made:
Debit Cash = $45,000 × 0.96 = $43,200 (because 4% of $45,000 is $1,800, which is the factoring fee, and the company receives the remaining amount)
Debit Factoring Fee Expense = $1,800
Credit Accounts Receivable = $45,000
Therefore, the correct option is C. The other options do not reflect the factoring fee or the correct amount received by the company, which can cause inaccuracies in the financial statements.

A Company Factored $45,000 of Its Accounts Receivable and Was