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

When a company sells its accounts receivable to a bank and the bank treats the company as a borrower, which type of arrangement is most likely in place?

Assignment of receivables as an outright sale

Pledging of receivables as collateral for a loan

Factoring of receivables with recourse

Factoring of receivables without recourse

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Verified step by step guidance

Understand the concept of accounts receivable: Accounts receivable represent amounts owed to a company by its customers for goods or services provided on credit. Companies may use these receivables to secure financing or sell them outright to manage cash flow.

Clarify the term 'pledging of receivables': Pledging receivables involves using accounts receivable as collateral for a loan. The company retains ownership of the receivables and is responsible for collecting them, but the lender has a claim on the proceeds if the loan is not repaid.

Differentiate 'factoring with recourse' and 'factoring without recourse': Factoring with recourse means the company sells its receivables to a factor (third party) but retains the risk of non-payment by customers. Factoring without recourse transfers both ownership and risk to the factor, meaning the company is not liable for uncollected receivables.

Analyze the arrangement described in the problem: The bank treats the company as a borrower, which indicates that the receivables are being used as collateral for a loan rather than being sold outright. This aligns with the concept of pledging receivables.

Conclude the correct arrangement: Based on the description, the most likely arrangement is 'Pledging of receivables as collateral for a loan,' as the company retains ownership and the receivables are used to secure financing.