Lounow Distributors is a growing company whose ability to raise capital has not been growing as quickly as its expanding assets and sales. Lounow’s local banker has indicated that the company cannot increase its borrowing for the foreseeable future. Lounow’s suppliers are demanding payment for goods acquired within 30 days of the invoice date, but Lounow’s customers are slow in paying for their purchases (60–90 days). As a result, Lounow has a cash flow problem.
Lounow needs $160,000 to cover next Friday’s payroll. Its balance of outstanding accounts receivable totals $800,000. To alleviate this cash crunch, the company sells $170,000 of its receivables. Record the entry that Lounow would make. (Assume a 2% service charge.)