Intermediate Accounting Chapters
Chapter 7: Cash and Receivables
When looking at the FASB codification, there are two main sections to examine about the transfers of receivables. The first section is 860-10 Transfers and Servicing, and the second section to consider would be 310-10 which is Receivables Overall. When finding other examples of continuing involvement, I looked into section 860-10-55.
In section 860-10-10-1 it listed the objectives for reporting transfers of receivables. When searching for these objectives, it was stated that there was a superseding of the amendment. The addition stated “comparability and consistency in accounting for transferred financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting.” In other words, financial statements will become more accurate and less fraudulently represented to users and the objective is not to double count for sales, or attempt to include transfers or receivables within a company’s operating income and revenue.
According to the master glossary within the FASB codification, there are definitions for transfer, recourse, and collateral. Transfer is defined as “the conveyance of noncash financial assets by and to someone other than the issuer of that financial asset”. Recourse is defined as “the right of a transferee of receivables to receive payment from the transferor of those receivables for any of the following: a. failure of debtors to pay when due b. the effects of prepayments c. adjustments resulting from defects in the eligibility of the transferred receivables.” Contractually, the best way to have is a clause stating without recourse. Collateral is defined by the Code as, “personal or real property in which a security interest has been given.” In other words, when making a transfer there must be something else that can be held onto in trust of the dealer actually following through with the transfer.
When looking at the FASB codification, there are two main sections to examine about the transfers of receivables. The first section is 860-10 Transfers and Servicing, and the second section to consider would be 310-10 which is Receivables Overall. When finding other examples of continuing involvement, I looked into section 860-10-55.
In section 860-10-10-1 it listed the objectives for reporting transfers of receivables. When searching for these objectives, it was stated that there was a superseding of the amendment. The addition stated “comparability and consistency in accounting for transferred financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting.” In other words, financial statements will become more accurate and less fraudulently represented to users and the objective is not to double count for sales, or attempt to include transfers or receivables within a company’s operating income and revenue.
According to the master glossary within the FASB codification, there are definitions for transfer, recourse, and collateral. Transfer is defined as “the conveyance of noncash financial assets by and to someone other than the issuer of that financial asset”. Recourse is defined as “the right of a transferee of receivables to receive payment from the transferor of those receivables for any of the following: a. failure of debtors to pay when due b. the effects of prepayments c. adjustments resulting from defects in the eligibility of the transferred receivables.” Contractually, the best way to have is a clause stating without recourse. Collateral is defined by the Code as, “personal or real property in which a security interest has been given.” In other words, when making a transfer there must be something else that can be held onto in trust of the dealer actually following through with the transfer.