Hello everyone,
Can somebody please let me know is there any provision of recourse - non recourse accounting under igaap?
this is in relation to some factoring arrangement taken by a client who is a supplier of material.
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Recourse -non recourse accounting
Replies (5)
Quick Summary
No provisioning is required technically because future operating losses cannot have a provisiom. Factoring is securing against future operating loss which may arise due to low liquidity and imcreased borrowing coats.
Yes non provisioning is essential .
recourse and non recourse is not very clear. Can u please explain.
recourse and non recourse is not very clear. Can u please explain.
The arrangement is about bill discounting entered with an Oem, bank and the concerned client. The arrangement is recourse. whether we need to account the dues rec'd from bank but not settled as loan or simply this can be knocked off against accounts receivable?
What is invoice discounting? Invoice discounting is probably the simplest form of invoice finance. As with all types of invoice finance, with invoice discounting you sell unpaid invoices to a lender and they give you a cash advance that's a percentage of the invoice's value.
The probability of an outflow decides provisioning of receievables based on past expectations. Now a days the ecl model is used and not sure if its for as standards. If you get 80% on invoice and did not get the money yet, you cant create a provision on it cause the transaction is not finalised.
However
Dr. Provision for bad debt
Cr. Receivables
Contra entry can be made and when you receive the money from.lenders for full amount
Dr. Bank
Cr. Provision for bad debts
When 80% is received and then for the rest of the amount
Dr. Bad debt expense
Cr. Provison for bad debt
For the 20% unrecoverable amount.
From the above no need for a provisuon until you receive your amounts. Afterwards you can because it doesnt make any difference
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