Firms that are temporarily short of cash and unable to borrow from usual sources can convert accounts receivable into cash by selling accounts receivable to a bank or financing company.This is called
A)assigning accounts receivable.
B)pledging accounts receivable.
C)factoring accounts receivable.
D)transferring accounts receivable.
E)none of the above.

Question

Quizplus · Accepted Answer

The process where a company sells its accounts receivable to a bank or financing company to raise cash is called factoring. Choice A, assigning accounts receivable, refers to the practice of companies designating specific customers' debt to a factor. Choice B, pledging accounts receivable, refers to using accounts receivable as collateral to obtain a loan from a bank or financing company. Choice D, transferring accounts receivable, is incorrect because it is not a commonly used term in the context of selling accounts receivable.

Firms That Are Temporarily Short of Cash and Unable to Borrow