Cash Operating Cycle Journal entries

yasaswi gomes (My grammar is 💯 good I)   (7290 Points)

26 January 2021  

Hi

Hope these entries are satisfying to get a gist of Cash Operating Cycle and Factoring. Discount philosophy- can apply discount when annualised discount factor > cost of finance.

Purchases
Dr. Purchases (COS)
Dr. Freight (Admin)
Cr.            Payables  

 

Production & Finished goods
Dr. WIP   
Dr. Other Conversion Exps.
Dr. Finished Inventory
Cr. Payables  

 

Sales
Dr. Receivables
Dr. Discount  
Dr.  Cash  
Cr. Sales  

 

Financing Costs
Dr. Finance cost
Cr.  Payables  

 

Invoice Discounting 100%
Dr. Bank  
Dr. Discounted @ 3% 1 month
Cr.  Receivables
Cr. Payables  

 

Liabilities
Dr.  Payables  
Cr.  Bank  

Note : derecognise receivables to the extent discounted only and expense the discounted amount. Or can follow the above way if charges are paid later as it solely depends on the banking procedure.

eg.

Dr. Bank  
Dr. Discounted @ 3% 1 month
Cr.  Receivables