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The Difference Between Assignment of Receivables & Factoring of Receivables

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You can raise cash fast by assigning your business accounts receivables or factoring your receivables. Assigning and factoring accounts receivables are popular because they provide off-balance sheet financing. The transaction normally does not appear in your financial statements and your customers may never know their accounts were assigned or factored. However, the differences between assigning and factoring receivables can impact your future cash flows and profits.

How Receivables Assignment Works

Assigning your accounts receivables means that you use them as collateral for a secured loan. The financial institution, such as a bank or loan company, analyzes the accounts receivable aging report. For each invoice that qualifies, you will likely receive 70 to 90 percent of the outstanding balance in cash, according to All Business . Depending on the lender, you may have to assign all your receivables or specific receivables to secure the loan. Once you have repaid the loan, you can use the accounts as collateral for a new loan.

Assignment Strengths and Weaknesses

Using your receivables as collateral lets you retain ownership of the accounts as long as you make your payments on time, says Accounting Coach. Since the lender deals directly with you, your customers never know that you have borrowed against their outstanding accounts. However, lenders charge high fees and interest on an assignment of accounts receivable loan. A loan made with recourse means that you still are responsible for repaying the loan if your customer defaults on their payments. You will lose ownership of your accounts if you do not repay the loan per the agreement terms.

How Factoring Receivables Works

When you factor your accounts receivable, you sell them to a financial institution or a company that specializes in purchasing accounts receivables. The factor analyzes your accounts receivable aging report to see which accounts meet their purchase criteria. Some factors will not purchase receivables that are delinquent 45 days or longer. Factors pay anywhere from 65 percent to 90 percent of an invoice’s value. Once you factor an account, the factor takes ownership of the invoices.

Factoring Strengths and Weaknesses

Factoring your accounts receivables gives you instant cash and puts the burden of collecting payment from slow or non-paying customers on the factor. If you sell the accounts without recourse, the factor cannot look to you for payment should your former customers default on the payments. On the other hand, factoring your receivables could result in your losing customers if they assume you sold their accounts because of financial problems. In addition, factoring receivables is expensive. Factors charge high fees and may retain recourse rights while paying you a fraction of your receivables' full value.

• All Business: The Difference Between Factoring and Accounts Receivable Financing

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Home > Accounts Receivable > Assignment of Accounts Receivable Journal Entries

Assignment of Accounts Receivable Journal Entries

The assignment of accounts receivable journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting of accounts receivable assignment.

The assignment of accounts receivable journal entries are based on the following information:

• Accounts receivable 50,000 on 45 days terms
• Assignment fee of 1% (500)
• Initial advance of 80% (40,000)
• Cash received from customers 6,000
• Interest on advances at 9%, outstanding on average for 40 days (40,000 x 9% x 40 / 365 = 395)

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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Assignment of accounts receivable is an agreement in which a business assigns its accounts receivable to a financing company in return for a loan. It is a way to finance cash flows for a business that otherwise finds it difficult to secure a loan, because the assigned receivables serve as collateral for the loan received.

By assignment of accounts receivable, the lender i.e. the financing company has the right to collect the receivables if the borrowing company i.e. actual owner of the receivables, fails to repay the loan in time. The financing company also receives finance charges / interest and service charges.

It is important to note that the receivables are not actually sold under an assignment agreement. If the ownership of the receivables is actually transferred, the agreement would be for 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 only entitled 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:

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.

Journal Entries on March 1

Initial fee = 0.01 × 50,000 = 500

Cash received = 50,000 – 500 = 49,500

The accounts receivable don't actually change ownership. But they may be to transferred to another account as shown the following journal entry. The impact on the balance sheet is only related to presentation, so this journal entry may not actually be passed. Usually, the fact that accounts receivable have been assigned, is stated in the notes to the financial statements.

Journal Entries on April 1

Interest expense = 50,000 × 12%/12 = 500

by Irfanullah Jan, ACCA and last modified on Oct 29, 2020

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Assignment of Accounts Receivable

The financial accounting term assignment of accounts receivable refers to the process whereby a company borrows cash from a lender, and uses the receivable as collateral on the loan. When accounts receivable is assigned, the terms of the agreement should be noted in the company's financial statements.

Explanation

In the normal course of business, customers are constantly making purchases on credit and remitting payments. Transferring receivables to another party allows companies to reduce the sales to cash revenue cycle time. Also known as pledging, assignment of accounts receivable is one of two ways companies dispose of receivables, the other being factoring.

The assignment process involves an agreement with a lending institution, and the creation of a promissory note that pledges a portion of the company's accounts receivable as collateral on the loan. If the company does not fulfill its obligation under the agreement, the lender has a right to collect the receivables. There are two ways this can be accomplished:

General Assignment : a portion of, or all, receivables owned by the company are pledged as collateral. The only transaction recorded by the company is a credit to cash and a debit to notes payable. If material, the terms of the agreement should also appear in the notes to the company's financial statements.

Specific Assignment : the lender and borrower enter into an agreement that identifies specific accounts to be used as collateral. The two parties will also outline who will attempt to collect the receivable, and whether or not the debtor will be notified.

In the case of specific assignment, if the company and lender agree the lending institution will collect the receivables, the debtor will be instructed to remit payment directly to the lender.

The journal entries for general assignments are fairly straightforward. In the example below, Company A records the receipt of a $100,000 loan collateralized using accounts receivable, and the creation of notes payable for $100,000.

In specific assignments, the entries are more complex since the receivable includes accounts that are explicitly identified. In this case, Company A has pledged $200,000 of accounts in exchange for a loan of $100,000.

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Understand your assignment

Create an outline for your assignment, finding information, reading and taking notes, writing your assignment, edit and proofread.

The journey to completing an accounting course will require the successful completion of a variety of assignments. Everything from reports, essays, practice sets, and even projects are part of what to expect in the course of studying accounting. It can be difficult to navigate how to translate the knowledge learned in class into successful assignments. Hence the need for a guide to help you navigate it. Here is a detailed step-by-step guide that is extremely useful in helping you through writing an accounting assignment.

The planning process will involve two steps; understanding your assignment and creating an outline for your work. This step is the first and most important in successfully tackling your accounting assignment.

Depending on what your assignment is, i.e., a report, an essay, or a practice set, the first step in planning how to tackle it is understanding the requirements of the essay. This looks like, knowing what the topic of your assignment entails, looking at any mathematical tests assigned, and determining what the best way to tackle them would be. For example, an assignment on say, how to create a balance sheet could have different sections i.e., one question could have some definition of terms and one could include doing some workings of different components to get the totals needed to create your balance sheet. Understanding your assignment will give you the direction needed to start researching and writing your work. It will inform you on where to look to be able to successfully tackle your accounting assignment.

The next step in planning is having an outline or a basic structure of your assignment. Having understood the assignment topic and requirements, you need to create a skeleton of how your work will flow. Different assignments take different formats depending on the assignments issued by the accounting instructor . It is therefore important to create an outline to help you focus on the different sections of your work. For example, in a report assignment, the structure will differ from a p-set assignment. The outline also offers direction on where to research your topic. For most accounting problems, the answer to one section feeds the other. For example, in the above, you cannot create a balance sheet without doing the workings to get the figures for the components of the balance sheet like the liabilities, depreciation, inventory, etc. To be able to get the depreciation figures to be used to get the net book value of the fixed assets, you have to have workings for the different assets. Hence the need for an outline.

Reading and researching

Once you have a plan for your work, the next step in writing your assignment is reading and researching. Reading is where you will go through your class notes and review them on the topic given. Reading gives you an idea of what additional information you need that will inform your research. There are 2 steps in reading and research;

Once you have the sources of information sorted, the next step is reading and taking notes that are relevant to your assignment topic or problem sets. To avoid plagiarized work in essays and reports, make sure that you read the information to understand, that way, when you start writing, you will write in your words and therefore avoid the penalty that comes with plagiarized work. Try to solve some problem sets you find in your research to get an idea of how to solve the ones in your accounting assignments. For our above example, try to create 1 or 2 cashflow statements from examples on the books or on the web to give you an idea of how you will tackle your assignment. Take notes on the different principles that govern cash flow statements to avoid mistakes. Remember that the answer to one section of the assignment will most likely feed the other in accounting, hence take care to get each section correctly. Taking notes also enables you to distinguish between phrases that are yours and those that are of other authors.

Once you have read and understood your topic and have the notes necessary to tackle your assignment, then the final step is writing. Writing will take 2 steps, the actual writing of the assignment and then editing and proofreading your work to remove any errors.

The last step in your assignment will be editing and proofreading your work. This is one of the most important steps and will ensure that there are no errors in your work. For essays and report assignments, read your work out loud to be able to detect any missing punctuation, wrong use of words, wrong spelling, and any sentences and paragraphs that may be too long and illegible. Use grammar tools to better countercheck your work. Proofreading of accounting statements is checking if the statement formats are as dictated by accounting standards and for the example of the balance sheet if the equation balances i.e total assets= liabilities+ equity. Take care to also run your assignment through a plagiarism checker to ensure that you do not have any duplicate work that could lead you to get a low grade, especially in essay and report assignments. By following this step-by-step guide, planning, researching, writing then reviewing your work, you are assured that your accounting assignment will be successfully tackled.

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Cost Allocation – Meaning, Importance, Process and More

Cost Allocation or cost assignment is the process of identifying and assigning costs to the various cost objects. These cost objects could be those for which the company needs to find out the cost separately. A few examples of cost objects can be a product, customer, project, department, and so on.

The need for cost allocation arises because some costs are not directly attributable to the particular cost object. In other words, these costs are incurred for various objects, and then the sum is split and allocated to multiple cost objects. These costs are generally indirect. Since these costs are not directly traceable, an accountant uses their due diligence to allocate these costs in the best possible way. It results in an allocation that could be partially arbitrary, and thus, many refer cost allocation exercise as the spreading  of a cost.

Examples of Cost Allocation

• Cost Allocation – Importance

Cost Allocation Method

Define costs, identify cost objects, basis of allocation, accumulate costs into cost pool.

For example, a company’s CEO uses his car for personal and official purposes. So, if the CEO decides to allocate costs, then they will divide the cost (fuel, maintenance, etc.) for business and personal use based on usage.

The following examples will help us understand the cost allocation concept better:

• A company has a building in which there are various departments. One can allocate depreciation costs to the department on the basis square ft area of each department. This cost will then be further assigned to the products on which the department works.
• An accountant can attribute electricity that a production facility consumes to different departments. Then the accountant can assign the department’s electricity cost to the products that the department works on.
• An employee works on three products for a month. To attribute their salary to three products, an accountant can use the number of hours the employee gave to each product.

Cost Allocation – Importance

The following points reflect the importance of allocating costs:

• Allocating cost is essential for financial reporting, i.e., to correctly assign the cost among the cost objects.
• It allows the company to calculate the true profitability of the department or function. This profitability could serve as the basis for making further decisions for that department or service.
• If cost allocation is correct, it allows the business to identify and understand the costs at each stage and their impact on the profit or loss. On the other hand, if the allocation is incorrect, the company may end up making wrong or inconsistent decisions concerning the distribution of resources amongst various cost objects.
• The concept is also useful for finding the transfer prices when there is a transaction between subsidiaries.
• It helps a company make better economic decisions, such as whether or not to accept a new order.
• One can also use the concept to evaluate the performance of the staff.
• It helps in better explaining to the customers the costs that went into the pricing of a product or service.
• Allocation cost helps a company know where the money is going and how much. It will assist the company in using the resources effectively. Pool costs, if not allocated, may give an unbalanced view of the cost of various objects.

As such, there is no specific method to allocate costs. So, an accountant needs to use his or her due diligence to assign a cost to the cost object. Of course, they are considering the practice adopted in a similar industry. For instance, the accountant may decide to allocate expenses based on headcount, area, weightage, and so on.

Also Read: Cost Object – Meaning, Advantages, Types and More

Irrespective of the method an accountant uses, their objective should be to allocate the cost as fairly as possible. Or to allocate cost in a way that is in line with the nature of the cost object. Or to lower the arbitrariness in awarding costs.

Several efforts are underway to better cost allocation techniques. For instance, the overhead allocation for manufacturers, which was on plant-wide rates, is now based on departmental standards. Also, accountants use machine hours instead of direct labor hours for allocation.

Moreover, some accountants are also implementing activity-based costing to better the allocation. So, there can be several ways to allocate costs. But, whatever form the company selects, it is essential to document the reasons backing that method, and that need to be followed consistently for several periods.

A company can ensure documentation by developing allocation formulas or tables. Moreover, if a company wants, it can also pass supporting journal entries to transfer costs to the cost objects or do it via the chargeback module in the ERP system.

Also Read: Cost Hierarchy – Meaning, Levels and Example

Nowadays, cost allocation systems are available to assist in cost allocation. Such systems track the entity that produces the goods or services and the body that consumes those goods or services. The system also identifies the basis to distribute the cost.

The process to Allocate cost

As said above, there are no specific methods for allocating costs. Similarly, there is no particular process for it, as well. However, the process we are detailing is one of the most popular, and many companies use it for allocating costs. Following is the process:

Before allocating the cost, a company must define the various types of costs. Generally, there are three types of costs – direct, indirect, and overhead. Direct costs are those that one can easily attribute to a product or service, such as wages to factory workers or raw material for the specific product.

Indirect costs are ones that a company needs to incur for its operations, such as administration costs. Primarily, these are the costs that a company needs to allocate as it is difficult to attribute them directly to a product or service or any other cost object.

Another type of cost is an overhead cost , which is also an indirect cost. These costs are incurred for the production and selling of goods or services. Such costs do not vary based on production or sales. A company needs to pay them even if it is not producing or selling anything. Research and development costs, rent, etc., are good examples of such a cost.

The company or the accountant must know the cost objects for which they need to allocate the cost. It is crucial as we can’t assign costs to something on which we have no information. A cost object could be the product, customer, region, department, etc.

Along with the cost object , the company must also determine the basis on which it would allocate the cost. This basis could be the number of hours, area, headcount, and more. For example, if headcount is the basis of allocation for insurance costs and a company has 500 employees, then the department with 100 employees will account for 20% of the insurance cost. Experts recommend choosing a cost allocation base that is a crucial cost driver as well.

A cost driver is a variable whose increase or decrease leads to an increase or decrease in the cost as well. For instance, the number of purchase orders could be a cost driver for the cost of the purchasing department.

An accountant may create many categories to pool costs, which are to be allocated subsequently. It is the account head where the costs should be accumulated before assigning them to the cost objects. Cost pools can be insurance, fuel consumption, electricity, rent, depreciation, etc. The selection of the cost pool primarily depends on the use of the cost allocation base.

Continue reading – Costing Terms .

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• Introduction to Financial Accounting

(4 reviews)

David Annand, Athabasca University

Henry Dauderis

Copyright Year: 2017

Last Update: 2021

Publisher: Lyryx

Language: English

Formats Available

Conditions of use.

Learn more about reviews.

Reviewed by Katheryn Zielinski, Assistant Professor, Minnesota State University Mankato on 6/14/23

The text reading follows typical financial accounting flow. Beginning with the foundational introduction to what accounting is through the full accounting cycle, while including financial statement analysis towards the end of the book. Students... read more

Comprehensiveness rating: 5 see less

The text reading follows typical financial accounting flow. Beginning with the foundational introduction to what accounting is through the full accounting cycle, while including financial statement analysis towards the end of the book. Students will find the format helpful; the voice is student-friendly. There is online homework help for students. Instructors will find the text format friendly to semester-long class as concepts broken down into 13 chapters. The chapters explain the learning outcomes, use examples to express concepts, with chapter summary at end. The topics included are consistent with intro accounting courses.

Content Accuracy rating: 5

No issues noticed with accuracy. The text includes accurate financial accounting information.

Relevance/Longevity rating: 5

For an introductory accounting class with focus on US the concepts covered are typical.

Clarity rating: 5

The content is presented in a student friendly manner. Answers are provided. The extra information is helpful for students wanting extra practice.

Consistency rating: 5

The format and layout of the book chapters are consistent. All users will quickly understand the format as it is applied the same to each chapter. This helps provide consistency for students learning introductory accounting.

Modularity rating: 5

The content within the chapters can be broken-down and assigned as instructor plans for the course length. The manner is which the material is presented flows easily as reading.

Organization/Structure/Flow rating: 5

The text organization is consistent and coherent. Each chapter is presented in same manner.

Interface rating: 5

No observed tech issues. PDF downloaded and used with ease.

Grammatical Errors rating: 5

No grammar or language issues.

Cultural Relevance rating: 5

No cultural insensitive or offensive context noted.

This is a student friendly text. However, students might find a glossary helpful, as well as an index.

Reviewed by Lawrence Overlan, Part-time Professor, Bunker Hill Community College on 6/4/20

I appreciate how the Statement of Cash Flows has a separate chapter towards the end of the book. Might be better to wait until that chapter instead of also discussing it in Chapter One.....lots of material for opening week.... read more

Comprehensiveness rating: 4 see less

I appreciate how the Statement of Cash Flows has a separate chapter towards the end of the book. Might be better to wait until that chapter instead of also discussing it in Chapter One.....lots of material for opening week....

I sampled several problems...all correct.

Hard to make accounting obsolete. All the required material is present.

Problems are presented clearly and with good font size. Excellent color schemes and graphics.

Yes....no problems detected in this area. Very straightforward.

Chapters contain the right amount of content. Not too long with out breakup diagrams or examples etc.

Standard flow of chapters with excellent subdivisions.

To the contrary, the graphics and flow charts break up the material very nicely.

No issues noticed in this area.

Nice work! I will definitely consider adopting.

Reviewed by Patty Goedl, Associate Professor, University of Cincinnati Clermont College on 3/27/18

The text covers all of the topics normally found in an introductory financial accounting (principles of accounting I) text. The table of contents essentially mirrors the table of contents found in the leading texts in this field. I like that... read more

The text covers all of the topics normally found in an introductory financial accounting (principles of accounting I) text. The table of contents essentially mirrors the table of contents found in the leading texts in this field. I like that this text also covers the classified balance sheet, financial disclosures and partnerships.

Content is error-free, accurate, and unbiased.

Relevance/Longevity rating: 4

The content is up-to-date. Introductory accounting does not change often so future updates should be minimal. The authors used the year 2015 in most of the problem and examples. This might make the text "seem" out-of-date in a few years.

The book is clear and concise. The topics are clearly explained and the technical terminology is appropriate for an introductory level.

The writing, style, and formatting are consistent throughout this text.

The text is divided into topical chapters, which is appropriate considering that the concepts build on each other. The chapters are further subdivided into sub-topics. This makes it easy for an instructor to pick which sub-topics to cover.

Excellent organization and flow. The concepts logically build upon each other and the material is presented in a clear fashion.

The HTML interface is excellent. The book has good graphics, end of chapter content, and even video examples.

I did not notice grammatical errors.

The text is not culturally insensitive or offensive in any way

Excellent book that is comparable to any of the leading financial accounting titles. The authors even provide end of chapter problems, videos, and interactive Excel problems for students. Overall, a great resource! I commend the authors for making something of this caliber freely available.

Reviewed by Margarita Maria Lenk, Associate Professor, Colorado State University on 1/7/16

The content of this textbook matches the content and organization of most introductory financial accounting textbooks. It is written by Canadian authors, but is relevant to US students. The text begins by explaining the role of financial... read more

The content of this textbook matches the content and organization of most introductory financial accounting textbooks. It is written by Canadian authors, but is relevant to US students. The text begins by explaining the role of financial accounting in society, and then describes the underlying structure of double entry accounting systems and the process of recording economic events that impact the value of the organization through the journals and the ledger. The records of these events are then summarized into the primary financial statements. The numeric subtotals and totals on these statements are used to calculate standard financial measures and ratios used to evaluate the organization's performance. The text's organization then proceeds sequentially through the balance sheet accounts, explaining in more detail how the accounting for each category of economic value is recorded and reported. The author's decision to move the most complex content to the end of the book matches how most faculty choose to organize their coverage of these topics.

My reviewed resulted in highest marks regarding accuracy. The only possible concern I would mention here is that the authors use a commonly used technique in chapter two which sometimes leads to students misunderstanding that revenues and expenses are not part of owners' equity until the revenues and expenses are closed at year end to retained earnings. It is my preference to teach introductory students that revenues and expenses are distinct and separate from equity, and then explain that revenues and expenses ultimately get closed to equity. So, this is not an inaccuracy by the authors, just a point that some instructors may want to know before adopting the textbook.

It is my opinion that the content of this textbook will be relevant and current for at least a decade. Any changes made to accounting principles, Canadian or International, will be very easy and straightforward to update.

It is my opinion that the clarity of this text is very high. The authors are succinct and use visuals often to highlight the theoretical structures.

This test is very consistent with the framework that is set up by the authors in the beginning of the text.

The textbook is very clearly divided into separable modules, making it easy for both students to read and for instructors to choose which modules to include in their course.

The content of this textbook matches the content and organization of most introductory financial accounting textbooks. It begins by explaining the role of financial accounting in society, and then describes the underlying structure of double entry accounting systems and the process of recording economic events that impact the value of the organization through the journals and the ledger. The records of these events are then summarized into the primary financial statements. The numeric subtotals and totals on these statements are used to calculate standard financial measures and ratios used to evaluate the organization's performance. The text's organization then proceeds sequentially through the balance sheet accounts, explaining in more detail how the accounting for each category of economic value is recorded and reported. The author's decision to move the most complex content to the end of the book matches how most faculty choose to organize their coverage of these topics.

The online text worked perfectly in my Chrome browser. The end of chapter exercises and problems are perfectly formatted on the screen. All assessment materials (quizzes, exams, etc.) are located on a different site that requires registration to have access.

I found the grammar to be very clear, concise and very effective. Because the book is written by Canadians, expenses are sometimes referred to as revenue expenditures, which does not match how US textbooks refer to expenses, but is perhaps a better learning tool, as the expenses are always recorded in the period in which they match the revenue generation, so I support the authors' choices regarding how they refer to the difference between assets (capital expenditures) and expenses (revenue expenditures).

The textbook adequately refers to the international accounting standards. That is the only cultural relevance which is relevant to introductory financial accounting.

I found this textbook and its exercises to be a useful teaching and learning tool. Instructors and students have access to pre-made PowerPoint slides, exercises and problems, and there is the option to enrol in an online service for online assessments, which seem to have student feedback capabilities in addition to assessment gathering capabilities.

Table of Contents

• The Accounting Process
• Financial Accounting and Adjusting Entries
• The Classified Balance Sheet and Related Disclosures
• Accounting for the Sale of Goods
• Assigning Costs to Merchandise
• Cash and Receivables
• Long-lived Assets
• Debt Financing: Current and Long-term Liabilities
• Equity Financing
• The Statement of Cash Flows
• Financial Statement Analysis
• Proprietorships and Partnerships

Ancillary Material

About the book.

This textbook is an adaptation by Athabasca University of the original text written by D. Annand and H. Dauderis. It is intended for use in entry-level college and university courses in financial accounting. A corporate approach is utilized consistently throughout the book.

The adapted textbook includes multiple ancillary student and instructor resources. Student aids include solutions to all end-of-chapter questions and problems, and randomly-generated spreadsheet problems that cover key concepts of each chapter. These provide unlimited practice and feedback for students. Instructor aids include an exam bank, lecture slides, and a comprehensive end-of-term case assignment. This requires students to prepare 18 different year-end adjusting entries and all four types of financial statements, and to calculate and analyze 16 different financial statement ratios. Unique versions can be created for any number of individual students or groups. Tailored solutions are provided for instructors.

The original Annand/Dauderis version of the textbook including .docx files and ancillary material remains available upon request to D. Annand ([email protected]).

About the Contributors

David Annand, EdD, MBA, CA, is a Professor of Accounting in the Faculty of Business at Athabasca University. His research interests include the educational applications of computer-based instruction and computer mediated communications to distance learning, the effects of online learning on the organization of distance-based universities, and the experiences of instructors in graduate-level computer conferences.

David completed his Doctorate in Education in 1998. His thesis deals with the experiences of instructors in graduate-level computer conferences.

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Assignment of Accounts Receivable: Definition, Benefits, and Emerging Trends

Last updated 03/28/2024 by

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What is assignment of accounts receivable, how does assignment of accounts receivable work, what are some special considerations for assignment of accounts receivable, emerging trends in assignment of accounts receivable, fintech solutions.

• Access to immediate cash flow
• Allows businesses to leverage their accounts receivable
• May be available to companies with limited credit history or poor credit
• Provides an alternative financing option when traditional loans are not available
• Helps businesses manage cash flow fluctuations
• Higher cost compared to traditional financing options
• Interest rates and service charges can be substantial
• May indicate financial distress to stakeholders
• Loss of control over customer relationships and collections process
• Defaulting on the loan can result in loss of assets

Frequently asked questions

How does assignment of accounts receivable differ from factoring, can any business use assignment of accounts receivable, what happens if a customer defaults on payment, is assignment of accounts receivable a sign of financial distress, what are the eligibility criteria for assignment of accounts receivable, how does assignment of accounts receivable affect financial statements, are there any alternatives to assignment of accounts receivable, how can businesses mitigate the risks associated with assignment of accounts receivable, key takeaways.

• Assignment of accounts receivable allows businesses to access immediate cash flow by leveraging their outstanding invoices.
• While it provides an alternative financing option, it can be costly compared to traditional loans.
• Fintech companies are transforming the accounts receivable financing market with innovative digital solutions.
• Businesses should carefully evaluate the terms and implications of assigning their accounts receivable before entering into agreements with lenders.

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What is Managerial Accounting?

Managerial accounting techniques, 1. margin analysis, 2. constraint analysis, 3. capital budgeting, 4. inventory valuation and product costing, 5. trend analysis and forecasting, additional resources, managerial accounting.

The identification, measurement, analysis, and interpretation of accounting information for internal decision-making

Managerial accounting (also known as cost accounting or management accounting) is a branch of accounting that is concerned with the identification, measurement, analysis, and interpretation of accounting information so that it can be used to help managers make informed operational decisions.

Unlike financial accounting, which is primarily concentrated on the coordination and reporting of the company’s financial transactions to outsiders (e.g., investors, lenders ), managerial accounting is focused on internal reporting to aid decision-making.

Managerial accountants need to analyze various events and operational metrics in order to translate data into useful information that can be leveraged by the company’s management in their decision-making process. They aim to provide detailed information regarding the company’s operations by analyzing each individual line of products, operating activity, facility, etc.

In order to achieve its goals, managerial accounting relies on a variety of different techniques, including the following:

Margin analysis is primarily concerned with the incremental benefits of optimizing production. Margin analysis is one of the most fundamental and essential techniques in managerial accounting. It includes the calculation of the breakeven point that determines the optimal sales mix for the company’s products.

The analysis of the production lines of a business identifies principal bottlenecks, the inefficiencies created by these bottlenecks, and their impact on the company’s ability to generate revenues and profits.

Capital budgeting is concerned with the analysis of information required to make the necessary decisions related to capital expenditures. In capital budgeting analysis, managerial accountants calculate the net present value (NPV) and the internal rate of return (IRR) to help managers to decide on new capital budgeting decisions.

Inventory valuation involves the identification and analysis of the actual costs associated with the company’s products and inventory. The process generally implies the calculation and allocation of overhead charges, as well as the assessment of the direct costs related to the cost of goods sold (COGS) .

Trend analysis and forecasting are primarily concerned with the identification of patterns and trends of product costs, as well as with the recognition of unusual variances from the forecasted values and the reasons for such variances.

Accounting Cycle

Capital Expenditures

Three Financial Statements

Accounting Test

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Assignments.

The assignments in this course are openly licensed, and are available as-is or can be modified to suit your students’ needs. Answer keys are available to faculty who adopt Lumen Learning courses with paid support. This approach helps us protect the academic integrity of these materials by ensuring they are shared only with authorized and institution-affiliated faculty and staff.

If you import this course into your learning management system (Blackboard, Canvas, etc.), the assignments will automatically be loaded into the assignment tool.

You can view them below or throughout the course.

• Module 1: Nature of Managerial Accounting — Assignment: Nature of Managerial Accounting
• Module 2: Cost-Volume-Profit Analysis —  Assignment: Stocking Stuffers, Inc.
• Module 3: Standard Cost Systems —  Assignment: BlueBlankets, Inc.
• Module 4: Allocating Manufacturing Overhead — Assignment: Canoe, Co.
• Module 5: Job Order Costing —  Assignment: Big Pots
• Module 6: Process Costing — Assignment: Dino Catchers
• Module 7: Budgeting for Operations — Assignment: RockChuck Company
• Module 8: Short-term Decision Making — Assignment: RareTerra, Inc.
• Module 9: Capital Investment Analysis — Assignment: Right Smart Bowling
• Module 10: Responsibility Accounting — Assignment: Big Boats, Inc.

Discussions

The following discussion assignments will also be preloaded into the discussion-board tool in your learning management system if you import the course. They can be used as-is, modified, or removed. You can view them below or throughout the course.

• Module 1: Nature of Managerial Accounting — Discussion: Recommendation to the Leadership Team
• Module 2: Cost-Volume-Profit Analysis — Discussion: Restaurant Entrepreneurs
• Module 3: Standard Cost Systems — Discussion: Cheesecake Factory
• Module 4: Allocating Manufacturing Overhead — Discussion: Allocating Manufacturing Overhead
• Module 5: Job Order Costing — Discussion: The Case of the Busted Blockbuster
• Module 6: Process Costing — Discussion: Computer Tech
• Module 7: Budgeting for Operations —  Discussion: Why Budget?
• Module 8: Short-term Decision Making — Discussion: Supply and Demand
• Module 9: Capital Investment Analysis — Discussion: Independent Forklift
• Module 10: Responsibility Accounting — Discussion: Ben & Jerry’s
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For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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Author: Harold Averkamp, CPA, MBA

assign definition

In cost accounting this term means to allocate, apply, apportion, or spread manufacturing overhead costs to the production output.

In terms of accounts receivable, assign means to pledge accounts receivable to a lender as collateral for a loan.

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• How do you divide the cost of real estate into land and building?
• What is the traditional method used in cost accounting?
• Are there two ABC methods in accounting?
• What is absorption costing?
• Why does a cost system developed for inventory valuation distort product cost information?
• What is the difference between actual overhead and applied overhead?

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Assign: What It Means, How It Works, Example

What Is Assign?

Broadly speaking, to assign is to transfer the rights or property from one person or business to another. An assignment can be any transfer of any sort of rights. In the financial markets, the term "assign" generally relates to the party that is required to deliver on an options contract . In the wider business world, it may also refer to the transfer of trademarks, banknotes, or other property rights. Mortgage assignments involve transferring mortgage deeds, while lease assignments transfer lease contracts.

Key Takeaways

• To assign in the options market is to randomly match buyers and sellers for maturing or exercised options contracts.
• The assigned party is required to deliver the assets underlying the options to the contract holder at the date established by the contract.
• More generally, to assign is to transfer rights or property from one party to another.

Understanding Assign

To assign means one of two actions taken in transferring rights. It refers either to the transfer of property rights from one individual or entity to another individual or entity or when an options contract is exercised . When an options contract is exercised, the owner of the contract assigns an options writer to the obligation to fulfill the requirements of the contract.

In the options and futures contract markets, assign is the matching of counterparties. The process is random and carried out by clearinghouses and brokerages. Once the assignment is made, the underlying securities or commodities are delivered to the holders of maturing or exercised contracts.

For example, if one trader is looking to purchase a May futures corn contract and another trader is looking to sell a May futures corn contract, the clearinghouse would match the requests of both traders, assigning them the appropriate contracts. The traders themselves will not have to search for the corresponding contract but just execute their orders, which are then matched by the clearinghouse.

Not all options contracts will be exercised or tendered. The ones that are exercised or tendered must be settled with the delivery of the underlying security. These are randomly assigned to brokerages that, in turn, randomly select which of their clients will be assigned.

During an assignment of options or futures contracts, the clearinghouse assigns an option writer who will be the required buyer or seller of the underlying contract upon its exercise.

Assign and Options

Options offer the right but not the obligation to buy an underlying asset at a specific price. In the U.S. markets, options can be exercised anytime, while options in the European markets are exercised only on the option expiration date. If an option is exercised, the assignment will be made immediately.

When an option is exercised, the option writer, who is the call seller, in this case, must fulfill the obligations of the contract. The call writer could be obligated to sell a specific number of underlying securities for a specific price, for example.

Options buyers speculate on the future movements of stocks or other assets. Option buyers believe that the underlying asset will move one way, while option sellers, who are called writers, are betting that the asset moves in the opposite direction.

Brokerages and clearinghouses are needed to connect buyers and sellers of options contracts. The seller and writer of a call option will sell a set number of shares at a set price if the option is exercised. If the option is called, the brokerage assigns a client with a short position, again at random, to deliver the stock to another client with a long position in the same contract. The brokerage will randomly select the counterparty who must deliver the asset when the contract requires it to be delivered.

Assign and Property

In regards to property, assign refers to the transfer of rights. This can refer to any asset, whether tangible or intangible , property, or contract. The assignment is completed via an agreed-upon written document.

For example, a mortgage assignment is when the mortgage deed allows an individual interest in a property in return for payments received. Many banks that have mortgages sell their mortgages to other lenders in return for a lump payment in order to free up their balance sheet to make new mortgages. The bank would be assigning their mortgages to another lender.

Another form of property assignment includes wage assignments , where a court rules that a portion of a person's wages must be withheld in order to make specific payments, such as alimony .

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