When accounts receivable are factored with recourse and are accounted for as a loan, what account does the transferor credit?

Question

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When accounts receivable are factored with recourse and are accounted for as a loan, the transferor (seller) recognizes a liability for the amount received from the factor and credits the liability account. This is because even though the accounts receivable have been transferred to the factor, the seller still retains a risk of loss if the customer fails to pay the debt. The liability account represents the seller's obligation to the factor in the event that the accounts receivable are not collected.

When Accounts Receivable Are Factored with Recourse and Are Accounted