Determine the appropriate cash flow statement treatment

Reference no: EM13138502

Sale of Accounts Receivable

The Company sells undivided interests in designated pools of qualified accounts receivable to a securitization vehicle (a qualifying special purpose entity). The Company utilizes securitization as a "financing technique" (e.g., to reduce more expensive bank debt - the interest rates the company obtains on notes issued by the qualifying special purpose entity are lower than the company could get on its own bank debt). The Company services, administers and collects the receivables on behalf of the purchaser. The agreement includes certain covenants and provides for various events of termination. The agreement also requires that proceeds from securitization be used to pay down Company debt. During the current year, $11 million of receivables generated from sales of the Company's inventory were sold under the agreement, and, therefore, are not reflected in the accounts receivable balance in the Company's balance sheet.

Determine the appropriate cash flow statement treatment - classification (e.g., operating, investing, financing) and timing, if applicable, - for the above transactions.

Reference no: EM13138502

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