What Are Asset Sales?

An asset sale is when a bank or other type of firm 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. This may affect net income. A government performing this process is known as disinvestment.

Understanding 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.