What are 'Asset Sales'

An asset sale is when a bank sells its receivables to another party. Accounts receivable are kept as an asset on a balance sheet. Asset sales are often accomplished through the sales of individual loans or pools of whole loans. Asset sales are nonrecourse sales that are also sometimes accomplished through the securitization of the bank's receivables. These types of transactions are used to mitigate asset-related risk, obtain free-cash flows, for liquidation requirements, and other reasons.

BREAKING DOWN 'Asset Sales'

An asset sale occurs when a bank sells its receivables to another party. Asset sales are a complex transaction from an accounting perspective. An asset sale is classified as such if the seller gives the buyer control of the property after payment is made. There cannot be further recourse to the buyer. If recourse were allowed, this characteristic will cause the transaction to be regarded as financing which would not give the bank the desired result of increased free cash flows.

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RELATED FAQS
  1. What is the difference between a non-recourse loan and a recourse loan?

    The difference between recourse and non-recourse loans comes into play if the borrower defaults, the collateral is sold, ... Read Answer >>
  2. How does securitization increase liquidity?

    Learn how securitization increases affects working capital and liquidity, and why it matters for a company seeking to increase ... Read Answer >>
  3. What is an asset?

    An asset is anything of value that can be converted into cash. For companies, an asset might generate revenue, or the company ... Read Answer >>
  4. How do fixed assets and current assets differ?

    Current assets can be converted into cash in less than one year, while fixed assets are long-term physical assets. Read Answer >>
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