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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Ethics and professional conduct in business

Picasso Graphics is a graphics arts design consulting firm. Pablo Taylor, its treasurer and vice president of finance, has prepared a classified balance sheet as of July 31, 2016, the end of its fiscal year. This balance sheet will be submitted with Picasso Graphics’ loan application to Paris Trust & Savings Bank.

In the Current Assets section of the balance sheet, Pablo reported a $56,000 receivable from Becky Holt, the president of Picasso Graphics, as a trade account receivable. Becky borrowed the money from Picasso Graphics in January 2014 for a down payment on a new home. She has orally assured Pablo that she will pay off the account receivable within the next year. Pablo reported the $56,000 in the same manner on the preceding year’s balance sheet.

Evaluate whether it is acceptable for Pablo to prepare the July 31, 2016, balance sheet in this manner.

To determine

Ethical Case:

In this case, Person M has deliberately reported a personal loan of $56,000 to the accounts receivable account in the balance sheet. This loan was borrowed by Person T who is the president of the company.

To Discuss: Whether it is acceptable for Mr. P to report the July 31, 2016 balance sheet.

Explanation
  • No. In order to reduce the larger personal loan burden to a single individual Mr. P has deliberately reported the personal loan of $56,000 as accounts receivable account. But by reporting the personal loan as normal accounts receivable does not exactly reflect the financial position of the company.
  • As the company is reporting the non current asset as a current asset, this may le...

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