Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Types of Receivables

Financial Accounting

7. Receivables and Investments

Types of Receivables

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Multiple Choice

Which term best describes the sale of receivables by a business to a third party for immediate cash?

Endorsing

Discounting

Factoring

Pledging

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Verified step by step guidance

Step 1: Understand the concept of 'Factoring' in Financial Accounting. Factoring refers to the process where a business sells its accounts receivable (money owed by customers) to a third party, known as a factor, in exchange for immediate cash. This helps businesses improve cash flow without waiting for customers to pay their invoices.

Step 2: Differentiate 'Factoring' from other terms mentioned in the problem. For example, 'Pledging' involves using receivables as collateral for a loan, while 'Discounting' typically refers to selling promissory notes or bills of exchange at a discount before their maturity date.

Step 3: Recognize the purpose of factoring. Businesses often use factoring to manage liquidity issues, reduce the risk of bad debts, and outsource the collection process to the factor.

Step 4: Analyze the options provided in the problem. The term 'Factoring' best fits the description of selling receivables to a third party for immediate cash, as opposed to 'Endorsing,' 'Discounting,' or 'Pledging.'

Step 5: Confirm the correct answer based on the explanation above. Factoring is the term that accurately describes the sale of receivables by a business to a third party for immediate cash.