Question

Calico Corners decides to sell $400,000 of its accounts receivable to Fast Cash Factors Inc. Fast Cash Factors assesses a service charge of 3% of the amount of receivables sold. Prepare the journal entry that Calico Corners makes to record this sale.

Answer 1

Step-by-step explanation:

The journal entry is shown below:

Cash A/c Dr $388,000

Service charge expense A/c Dr $12,000

To Account receivable A/c $400,000

(Being sale is recorded)

The service charge is an expense that is why it is debited and it is computed by

= Sales × service charge

= $400,000 × 3%

= $12,000

Since the sales is made so the company would received the cash that is why we debited the cash account and credited the accounts receivable account