A firm may use its accounts receivable as collateral for a loan from a bank or other financial institution.Which of the following is/are true?
A)The firm physically maintains control of the accounts receivable, collects cash from customers, and repays the loan.
B)If the firm fails to repay the loan, the lender can claim the receivables.
C)If the firm has used its accounts receivable as collateral for a loan, the firm will continue to show those receivables as an asset (and there will also be a loan payable liability).
D)The firm should disclose the lending arrangement in its financial reports.
E)all of the above

Question

Quizplus · Accepted Answer

All of the above statements are true. The firm maintains control of the accounts receivable and collects cash from customers to repay the loan. If the firm fails to repay the loan, the lender can claim the receivables. The firm will continue to show the receivables as an asset, and there will also be a loan payable liability. It is mandatory for the firm to disclose the lending arrangement in its financial reports to ensure transparency.

A Firm May Use Its Accounts Receivable as Collateral for a Loan