At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. The transfer is made without recourse. Homemark charges a fee of 3% of receivables factored. During July, $150,000 of the factored receivables are collected. What amount of loss on sale of receivables would Marquess record in June?

$6,000

Explanation:

Receivables may be factored to ease the liquidity pressures of an entity. Factoring comes at a cost. As such, when receivables are factored, the entries required are

Debit Cash account

Dr Interest expense (factoring charge)

Credit Accounts receivables

As such, the amount of loss on sale of receivables would Marquess record in June is equivalent to the factoring charge

= 3% * $200,000

= $6,000

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