Factoring

FIU, current account, Debt purchased account

 

Accounts maintain by Factors under pay as paid

1. Sales ledger control (Asset)

Accounting entries affected in this account are :

a. debt factored

b, credit note

c. reassignment of debts

d. discount

e. payment by customer

2. Client account (current account) (Liability)

Accounting entries affected in this account are:

a. debt factored

b. credit note

c. reassignment of debts

d. discount

e. advance payment to client

3. Funds in use ( FIU)

This is a  memorandum account. It is not a double entry account. The objective of this account is to keep track of the advance as well as to compute the discount charge. Accounting entries affected in this account are:

a. advance payment to client

b. discount

c. all factoring charges

d. payment receive from debtor

e. repayment from client

Discount charge is computed on the debit balance of this account.

 

Check : FIU + CA=SLC

 

Accounts maintain by factor under Maturity Payment

 

1. Sales ledger control (Asset)

The accounting entries are similar to pay as paid.

2. Debt purchased account (liability)

The accounting entries:

a. debt factored

b. Maturity of debt- when the debt reached the maturity period, it is transferred to the current account

c. Current account (liability)

The accounting entries are :

a. Debt matured

b. advance  to client

c, repayment by client

d. discount

e, all factoring charges

Discount charge is computed on the debt balance of this account.

 

Check: Debt Purchase account +CA=SLC