I am researching how to account for invoices which have been discounted, and I am finding two conflicting methods. I am hoping some experts out there can go back to basics with me and advise on the correct double entry.
1.On commencement of the discounting facility an advance will be made against the book debt of say for example 95%. What is the double entry for the immediate advance? Would it be DR a ID bank account set up in own accounts , CR short term loan? I am gathering the sales ledger remains untouched and is only used as security and not effectively sold to the discounter?
2.Double entry for the receipt of the funds too please....I think I may be over thinking this one as it seems very complicated...but I am very very rusty. My research has suggested crediting the sales ledger for full amount then raising a credit note for the 5% not advanced and charging to factoring cost?? No mention of it having an effect on the available funds in the ID bank account or on the amount owed to the discounter.
Thanks in advance.