I got lost: "Earthmovers recently sold $400,000 worth of accounts receivable with recourse. To date only $100,000 has been collected. " the answer seems to assume an adjustment of 300k to the EBITDA. Any explanation? should a sale of A/R affect earning? or is it becoz the A/R is with recourse and hence was accounted with liability?
If we initially had AR of 400K and we collected 100K from customers, so the new AR calculation would be 300K left in AR on the BS. If we sell this with recourse, we probably doing the collaterized loan trick. So as an Analyst, we have to get back the AR account from 0 back to 300K levels. And so we need to decrease earnings by 300K, no? Since the cash inflow that came from the sale is a addon liability for us.
dinesh.sundrani Wrote: ------------------------------------------------------- > If we initially had AR of 400K and we collected > 100K from customers, so the new AR calculation > would be 300K left in AR on the BS. > > If we sell this with recourse, we probably doing > the collaterized loan trick. So as an Analyst, we > have to get back the AR account from 0 back to > 300K levels. And so we need to decrease earnings > by 300K, no? Who ever bought it probably didn’t pay full boat even though there is still recourse to the company, but I am with you on the overall concept. Since the cash inflow that came from > the sale is a addon liability for us.
mwvt is correct. The difference between face amount of A/R (say 400 K) and the sales price (say 390 K) = 10 K in my example is recorded as interest expense. In the above situation 300 K are added to A/R and current liabilities.