Balance sheet

1.) What is substance over form and off balance sheet finance?

Expert Solution

Substance over form in accounting refers to a concept that transactions recorded in the financial statements and accompanying disclosure of a company must reflect their economic substance rather than their legal form. A transaction is an instance of an event that could alter the financial status of a business entity.

Off balance sheet financing is an accounting method whereby companies record certain assets and liabilities in a way that prevents them from appearing on their balance sheet. It is used to keep debt to equity and leverage ratios low, especially if the inclusion of a large expenditure would break negative debt convenants

Substance over form in accounting refers to a concept that transactions recorded in the financial statements and accompanying disclosure of a company must reflect their economic substance rather than their legal form. A transaction is an instance of an event that could alter the financial status of a business entity.

Off balance sheet financing is an accounting method whereby companies record certain assets and liabilities in a way that prevents them from appearing on their balance sheet. It is used to keep debt to equity and leverage ratios low, especially if the inclusion of a large expenditure would break negative debt convenants

Professor Nabeel answered 2 years ago

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