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

A company pledges its receivables so it can:

Reduce its tax liability

Obtain a loan by using receivables as collateral

Write off uncollectible accounts

Recognize revenue earlier

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Verified step by step guidance

Understand the concept of pledging receivables: Pledging receivables means that a company uses its accounts receivable as collateral to secure a loan. This allows the company to borrow money while still retaining ownership of the receivables.

Analyze the purpose of pledging receivables: The primary reason for pledging receivables is to obtain financing. By using receivables as collateral, the company can access funds without selling the receivables outright.

Eliminate incorrect options: Reducing tax liability, writing off uncollectible accounts, and recognizing revenue earlier are not directly related to the process of pledging receivables. These are separate accounting or financial activities.

Focus on the correct purpose: The correct purpose of pledging receivables is to obtain a loan. The receivables serve as security for the lender, ensuring repayment in case the borrower defaults.

Conclude the reasoning: Based on the analysis, the correct answer is that the company pledges its receivables to 'Obtain a loan by using receivables as collateral.' This aligns with the financial practice of leveraging assets to secure funding.