An entity may transfer/sell trade receivables to fund working capital and liquidity needs. In such transactions, the seller/transferor of the trade receivable, instead of receiving the entire consideration in cash, may agree to receive part of the consideration in cash and the balance as a noncash beneficial interest in the transferred/sold trade receivable. Such a beneficial interest may or may not be in a certificated form and is generally subordinated to the performance of the receivables transferred/sold.
ASC 230-10-45-16(a) states that cash inflows from operating activities include “[c]ash receipts from sales of goods or services, including receipts from collection or sale of accounts and both short- and long-term notes receivable from customers arising from those sales. The term goods includes certain loans and other debt and equity instruments of other entities that are acquired specifically for resale, as discussed in paragraph 230-10-45-21.” In accordance with this guidance, an entity presents the proceeds received upon a sale of trade receivables as an operating activity. As discussed below, the proceeds received on the sale of trade receivables to a securitization entity is represented by the cash purchase price.