What is Secured borrowing (transfers of receivables)?
In short
A transfer of financial assets, such as receivables, is a sale only if the assets are isolated from the transferor, the transferee can pledge or exchange them, and the transferor doesn't keep effective control. Otherwise it is a secured borrowing.
Key takeaways
- In a secured borrowing, the receivables stay on the balance sheet and the cash received is a liability.
- In a sale, the receivables are removed and a gain or loss is recognized.
- Assigning or pledging receivables as collateral is a secured borrowing.
Where it's tested
FAR: Cash, Receivables & Bad Debts — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company pledges its accounts receivable as collateral for a bank loan. How are the receivables reported?