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Assignment Of Accounts Receivable Form

Assignment of accounts receivable is an agreement between a lending company and a borrowing company in which the later assigns its accounts receivable to the former in return for a loan. By assignment of accounts receivable, the lender gets a right to collect the receivables of the borrowing company if it fails to repay the loan in time. The lender also receives finance charges and service charges.

It is important to note that the receivables are not sold/transferred under an assignment agreement. If the receivables have been transferred, the agreement would be of sale/factoring of accounts receivable. Usually, the borrowing company would itself collect the assigned receivables and remit the loan amount as per agreement. It is only when the borrower fails to pay as per agreement, that the lender gets a right to collect the assigned receivables on its own.

The assignment of accounts receivable may be general or specific. A general assignment of accounts receivable entitles the lender to proceed to collect any accounts receivable of the borrowing company whereas in case of specific assignment of accounts receivable, the lender is entitled only to collect the accounts receivable specifically assigned to the lender.

The following example shows how to record transactions related to assignment of accounts receivable via journal entries:

Example

On March 1, 20X6, Company A borrowed $50,000 from a bank and signed a 12% one month note payable. The bank charged 1% initial fee. Company A assigned $73,000 of its accounts receivable to the bank as a security. During March 20X6, the company collected $70,000 of the assigned accounts receivable and paid the principle and interest on note payable to the bank on April 1. $3,000 of the sales were returned by the customers.

Record the necessary journal entries by Company A.

Solution

Journal Entries on March 1:

Cash49,500
Finance Charge500
Notes Payable50,000
Accounts Receivable Assigned73,000
Accounts Receivable73,000

Journal Entries on April 1:

Cash70,000
Sales Returns3,000
Accounts Receivable Assigned73,000
Notes Payable50,000
Interest Expense500
Cash50,500

Written by Irfanullah Jan

We reproduce a number of contracts and forms that are useful in forming and operating a business with a maximum level of asset protection. From the earliest agreement to start a company to ways to remove valuable assets from a growing business, these forms cover the most popular strategies and gives clues as to how best to structure your operation. Equipment leases and various financing arrangements are also covered, allowing you the greatest protections under the law.

This Assignment of Accounts Receivable with Recourse Template can be used to quickly remove valuable receivables from the operating entity. Cash paid to the operating entity for the receivables is then quickly withdrawn as payments to the owner (or the holding entity) as salary, rents, loan payments, etc.

Some of these forms contain technical language and create significant legal obligations. Do not use any form without first having an attorney review the form and determine that it is suitable for the purpose for which you intend it.

This file contains a three-page documents in rich text format (RTF) that is suitable for use with most word processing programs used in the Windows environment. 

Special Features:

This sample document include sections on the following:

  • the parties involved and the terms of the assignment
  • the value placed on the reassigned accounts receivable
  • terms for collecting the accounts receivable
  • terms for returning the accounts receivable

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