The question is incomplete as it is missing the options. The complete question is,
A company factored $45,000 of its accounts receivable and was charged a 4% factoring fee. The journal entry to record this transaction would include a:
a. Debit to Cash of $45,000 and a Credit to Account Receivable of $45,000
b. Debit to Cash of $46,800 and a Credit to Account Receivable of $46,800
c. Debit to Cash of $45,000 and a Credit to Notes Payable of $45,000
d. Debit to Cash of $45,000, a Debit to Factoring Fee Expense of $1800, and Credit to Account Receivable of $43,200
e. Debit to Cash of $43,2000, a Debit to Factoring Fee Expense of $1,800, and Credit to Account Receivable of $45,000
Answer:
The correct answer is option e.
Explanation:
Factoring accounts receivables means selling the claims on accounts receivables to a third party in exchange of cash. Such factoring is done to receive payment for these accounts receivables instantly and selling the claims to some other company. The factoring company charges a certain portion of accounts receivable as fee and only provides cash after deducting this percentage. This fee is an expense for a company using factoring service and is debited.
So the general entry to record factoring would be,
Cash 43200 Dr
Factoring fee 1800 Dr
Accounts receivables 45000 Cr
Cash = 0.96 * 45000 = 43200
Factoring fee = 45000 * 0.04 = 1800