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Journalizing various receivable transactions

Asked Oct 21, 2009, 11:25 AM — 1 Answer
Specific accounts receivable of $9,000 (gross) are pledged to Rather Credit Corp. As security for a loan of $6,000 at a finance charge of 6% of the amount of the loan. The finance company will make the collections. (All the accounts receivable are past the discount period.)

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rehmanvohra's Avatar
rehmanvohra Posts: 610, Reputation: 96
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Oct 22, 2009, 09:59 PM
On receiving loan from bank

Debit Cash $6,000
Credit Short term loan $6,000

When the bank collects the receivables, it will adjust the principal and interest from the collections and refund the balance to the company.

The interest charge is 6% and assuming it to be an annual rate and that the receivables are collected in 3 months, the finance company will make a net payment of $2,910. The entry will beL

Bank/Cash 2,910
Interest charge 90
Short term loan 6,000
Accounts receivable 9,000
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