Health Corporation has several current notes receivable on its year-end balance sheet. While collection seems certain, it may be delayed beyond one year. Because of this, the controller wants to re-classify these notes as non-current. Health's treasurer also thinks that collection will be delayed but does not favor re-classification because this will reduce the current ratio from 1.5:1 to 0.8:1. This reduction in current ratio is detrimental to company prospects for securing a major loan. 1. Should the controller re-classify the notes? Give reasoning. 2. Does the treasurers position pose an ethical dilemma for the controller. Explain
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Health Corporation has several current notes receivable on its year-end
1. Should the controller re-classify the notes? Give reasoning.
2. Does the treasurers position pose an ethical dilemma for the controller. Explain.
Notes receivable are balance sheet items that record the value of promissory notes that a company owes and expects to be paid. The holder, or bearer, of a written promissory note is entitled to the amount specified in the legal agreement. A promissory note is a written agreement to pay another party cash on or before a future date specified. If the note receivable is due within a year, it is recorded as a current asset on the balance sheet. If the payment is not due for more than a year, it is classified as a non-current asset on the balance sheet.
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