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:

Recognize immediate revenue from future sales

Eliminate the receivables from its balance sheet

Reduce its tax liability for the current period

Obtain a loan using the receivables as collateral

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Verified step by step guidance

Understand the concept of pledging receivables: Pledging receivables means a company uses its accounts receivable as collateral to secure a loan. The receivables remain on the company's balance sheet, but they are disclosed as being pledged.

Clarify why the other options are incorrect: Pledging receivables does not recognize immediate revenue from future sales, as revenue recognition is governed by accounting standards and occurs when earned. It also does not eliminate receivables from the balance sheet, nor does it directly reduce tax liability.

Focus on the correct answer: When a company pledges its receivables, it is obtaining a loan by using those receivables as collateral. This is a common financing strategy for businesses needing immediate cash flow.

Relate the concept to financial accounting principles: The pledged receivables are still considered an asset on the balance sheet, but they are disclosed in the notes to the financial statements to inform stakeholders of the collateral arrangement.

Summarize the key takeaway: Pledging receivables is a financing activity that allows a company to access funds while retaining the receivables on its balance sheet, with proper disclosure in the financial statements.