SPE Transactions

[iceshift]

When a company sells its receivables to a SPE, does it record it as revenue?

Additionally:

• are receivables recorded as cost of sales?
• if the company makes a $10M equity investment into the SPE, would that $10M show up on the investment account like with other transactions using the equity method?

[S2000magician]

@iceshift

When a company sells its receivables to a SPE, does it record it as revenue?

No. The revenue was recorded when the receivable was created; i.e., the company sold some good or service on credit.

@iceshift

Additionally:

• are receivables recorded as cost of sales?
• if the company makes a $10M equity investment into the SPE, would that $10M show up on the investment account like with other transactions using the equity method?

No. Accounts Receivable is an asset. Cost of Sales is an expense.

I believe that SPEs must be consolidated, not shown using the equity method.

[iceshift]

Thanks for the reply: I understand that AR is created when revenue was recognized. But what about when the company sells the AR to the SPE? Its cash account increases, and AR account decreases. Are there any effects on the income statement?

[S2000magician]

@iceshift

Thanks for the reply: I understand that AR is created when revenue was recognized. But what about when the company sells the AR to the SPE? Its cash account increases, and AR account decreases. Are there any effects on the income statement?

Cash and A/R are both balance sheet accounts; there’s no effect on the income statement unless there’s a gain (essentially impossible) or a loss (very likely) on the sale of the A/R. But it’s still not revenue; it’s a gain or a loss, just as you might have from selling any other asset (such as PP&E).