Accounting for the pledging of accounts receivable as collateral for a loan requires:

Question

Quizplus · Accepted Answer

When accounts receivable are pledged as collateral for a loan, it is necessary to disclose this information in the notes to the financial statements. This information is important for the users of the financial statements to understand the company's liquidity position and the risks involved in the borrowing arrangement. Options A and B are not correct because the pledged receivables are still included in current assets and are not classified as investments. Option D is incorrect because there is a need for disclosure.

Accounting for the Pledging of Accounts Receivable as Collateral for a Loan