How to record factoring without recourse
Records the derecognition of trade receivables when risks and rewards are fully transferred to a factor.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Cash | Asset | 95,000.00 | - |
| Loss on Sale of Receivables (P&L) | Expense | 5,000.00 | - |
| Trade Receivables | Asset | - | 100,000.00 |
💡 Accountant's Note
Derecognition occurs when the entity transfers substantially all risks and rewards. In a non-recourse factoring arrangement, the credit risk is transferred to the factor, allowing the asset to be removed from the balance sheet.
Practitioner & Systems Framework
💻 ERP Architecture
Manual journal entry often required as standard AR modules may not support automatic derecognition upon sale.
⚠️ Audit Flags
Large factoring transactions near year-end (window dressing) or presence of 'continuing involvement' clauses.
📄 Required Documentation
Factoring agreement confirming the absence of recourse and transfer of control.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
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