Question

If a company adopts an accounts receivable factoring program, and accounts for the factoring as a sale of receivables, which of the following is true in the period the company starts the program (all else equal)? A. The factoring arrangement needs to be with a consolidated entity to qualify for sale accounting. B. The accounts receivable balance will increase. C. Cash flow from operations may increase. D. A retroactive restatement is necessary due to a change in accounting principle.

Answer 1

Answer:C. cash flow from operations may increase

Explanation:

A factoring system is one in which a firm sell his right to receive payments on it's receivable to a firm referred to as the factor as a discount in which the amount of discount represents the factor fees for taking up the risk.

The factor may be with or without recourse to the firm selling the receivable.

It's mostly entered into to reduce payment defaults and increase inflow of cash for operations.

The factor company does not need to be a consolidated company,it usually reduce the receivable and does not require a change in accounting principles.