if issue A/R backed security through a third party, when adjust balance sheet, should we just add those A/R back to liability? any changes to asset? should adjusted the CFO and CFF the SAME time we adjust balance sheet? reduce CFO and increase CFF? Thanks.
The analyst should reverse such a transaction as follows: - increase A/R by the amount of the sale - increase short-term debt by the amount of the sale - subtract the amount of the sale from CFO - add the amount of the sale to CFF What you are trying to do is reflect the economic substance of the matter: the company has borrowed, using some of its assets as collateral.