In the case of repurchase agreements, what is the initial journal entry for the cash received?

In a repurchase agreement, the initial transaction typically involves a company receiving cash in exchange for selling a financial asset with the intent to repurchase it later. This means that the company is not permanently giving up ownership of the asset; instead, it creates a liability to repay the cash received.

The correct journal entry for cash received involves debiting cash to reflect the increase in cash on hand. At the same time, since the company has an obligation to return the cash in the future (repurchase the asset), a corresponding credit is made to a liability account. This liability represents the company’s obligation to pay back the cash after the agreement period expires.

This accounting treatment accurately reflects the company's financial situation as it recognizes the cash inflow and the obligation that will need to be settled later. This is a key concept in understanding how to account for temporary financing arrangements such as repurchase agreements.