Reading 26, Q# 17 CFAI text The answer says that if the receivables had been held on balance sheet, both assets and liabilities would have been $267,500 higher. What is the liability component here? When we securitize, we will debit AR account and credit to Cash Account… isn’t it. I am missing some basic thing here. Can some one please explain.
If your an analyst and you add back the sale of receivables, you count the cash the company received as a liability. The AR goes back on the Asset side and the Cash on the liability because you are on the hook to pay back the cash, in the analyst view if you have recourse. This is an adjustment made by the analyst.
Think of it like this, instead of selling the receivables with recourse, you are actually taking out a loan and secured by the receivables. So liabilities and cash increase by the amount of the sale.