Wynn Distributors is a growing company whose ability to raise capital has not been growing as quickly as its expanding assets and sales. Wynn’s local banker has indicated that the company cannot increase its borrowing for the foreseeable future. Wynn’s suppliers are demanding payment for goods acquired within 30 days of the invoice date, but Wynn’s customers are slow in paying for their purchases (60–90 days). As a result, Wynn has a cash flow problem.
Wynn needs $160,000 to cover next Friday’s payroll. Its balance of outstanding accounts receivable totals $1,000,000. To alleviate this cash crunch, Wynn sells $200,000 of its receivables. Record the entry that Wynn would make when it raises the needed cash.
(Assume a 3% service charge.)