Hello guys, I am wondering how will the cash flow be affected if a company sell some of its receivables?
For example, a company sold 60 million of its accounts receivable for 50 million cash.
So here are the entries:
Dr. Cash 50 Million
Dr. factoring expense 10 Million
Cr. A/R 60 Million
Now, the account receivable account is down for 60 million, but as there is also an expense, net income should also be lower by 10*(1-Tax), so if we use the indirect method to calculate the CFO, the CFO should be higher by 60 - 10*(1-Tax) Million ? Is that correct?
Or…is the proceed count as operating cash flow at all? Maybe an financing cashflow?
I am really confused…could someone help?