It is standard accounting procedure, or a generally accepted accounting principle (GAAP), to make a journal...

It is standard accounting procedure, or a generally accepted accounting principle (GAAP), to make a journal entry to remove the current year's principle from the long-term liabilities. This entry reduces the long-term liabilities and increases the current liabilities. Your company has a bank loan that requires a current ratio of 1.5 times. The owner has asked you, the bookkeeper, not to make the adjusting entry that would take the current portion from the long-term liabilities. If you make the adjusting entry, the company's loan will need to be repaid immediately (or the loan called). What should you do?

Answer in a 100 words or more.

Expert Solution

Answer:

You ought to pursue the GAAP (sound accounting guidelines) and do the correct altering passage. You may recommend the proprietor look for changed types of financing that would not require maintenance of a 1.5 current proportion.

Also, you can offer to meet with the investor and endeavor to acquire a waiver of the present proportion, current proportion necessity for the present time frame.

I would pursue the standard bookkeeping strategy or GAAP and pass the changing passage and the current segment of the advance. This can be clarified by talking the precedent.

Assume before making any installment biker's business has current resources $200,000 and current liabilities $100,000. Before paying any current bit of the credit current proportion is

Current proportion = Current proportion/Current liabilities

= $350,000/$250,000

= 1.4 times

Assume the current bit of the long haul liabilities is $50,000. When he reimburses the current part of the credit will lessen both the present resources and current liabilities as current segment of the advance will be paid in real money. Subsequent to paying the current part of the credit then its present proportion will wind up equivalent to

Current proportion = Current proportion/Current liabilities

= $350,000-$50,000/$250,000-$50,000

= $300,000/$200,000

= 1.5 times

Consequently, in the wake of paying the current bit of the advance the present proportion has expanded from 1.4 times to 1.5 times as required bvy the bank. Therefore, proprietor isn't right and he should pass the changing section for reimbursing the current segment of the credit.

ekkarill92 answered 1 year ago

Although the equity method is a generally accepted accounting principle (GAAP), recognition of equity income has...

Although the equity method is a generally accepted accounting principle (GAAP), recognition of equity income has been criticized. What theoretical problems can opponents of the equity method identify? What managerial incentives exist that could influence a firm’s percentage ownership interest in another

Although the equity method is a generally accepted accounting principle (GAAP), recognition of equity income has...

Although the equity method is a generally accepted accounting principle (GAAP), recognition of equity income has many critics. For this discussion, use your knowledge of the equity method of accounting for investments to complete the following: What problems could opponents of the equity method identify? Note that some research may be necessary to answer this question. Which managerial incentives could influence a firm's percentage ownership interest in another firm?

Prepare a chronology of generally accepted accounting principles (US, GAAP).

The Financial Accounting Standards Board is the primary source of generally accepted accounting principles (GAAP) for...

The Financial Accounting Standards Board is the primary source of generally accepted accounting principles (GAAP) for all health care organizations. Do you agree with this statement? Why or why not?

Generally accepted accounting principles (GAAP) fail to capture all the transactions that are relevant for the...

Generally accepted accounting principles (GAAP) fail to capture all the transactions that are relevant for the valuation of a firm. Discuss the main areas where GAAP is deficient for the purposes of valuation.

Describe the purpose of U.S. generally accepted accounting principles (U.S. GAAP) and the benefits that these...

Describe the purpose of U.S. generally accepted accounting principles (U.S. GAAP) and the benefits that these rules provide.

1. Accounting is subject to the rules of Generally Accepted Accounting Principles (GAAP), which sets provisions...

1. Accounting is subject to the rules of Generally Accepted Accounting Principles (GAAP), which sets provisions for how accounting information is presented. Sometimes, GAAP requires actions that affect reported financial results, think revemue recognition, reserves for doubtful accounts, alternative depreciation methods, accounting for taxes. Do accounting profits provide a good measure of business performance? Why or why not? 2. The goal of financial management is to maximize the wealth of the shareholders. Do you think management should focus more on...

Currently, the two major sets of rules related to accounting are Generally Accepted Accounting Principles (GAAP)...

Currently, the two major sets of rules related to accounting are Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). How do the two systems differ? How are they similar? Do you think that GAAP and IFRS should converge? Explain. Your initial post should be 250-500 words, include at least one reference, and demonstrate solid academic writing skills.

The Financial Accounting Standards Board (FASB) is responsible for the Generally Accepted Accounting Principles (GAAP). Select...

The Financial Accounting Standards Board (FASB) is responsible for the Generally Accepted Accounting Principles (GAAP). Select a Concept or Principle and explain how it impacts business.

1. Explain which of the Generally Accepted Accounting Principles (GAAP) require the use of depreciation for...

1. Explain which of the Generally Accepted Accounting Principles (GAAP) require the use of depreciation for assets that have useful lives beyond one year, and explain why. 2. For-profits can use different methods for reporting depreciation to owners and to the government (for tax purposes). What is the practical effect of this allowance?

Question

It is standard accounting procedure, or a generally accepted accounting principle (GAAP), to make a journal...

Solutions

Expert Solution

Related Solutions

Although the equity method is a generally accepted accounting principle (GAAP), recognition of equity income has...

Although the equity method is a generally accepted accounting principle (GAAP), recognition of equity income has...

Prepare a chronology of generally accepted accounting principles (US, GAAP).

The Financial Accounting Standards Board is the primary source of generally accepted accounting principles (GAAP) for...

Generally accepted accounting principles (GAAP) fail to capture all the transactions that are relevant for the...

Describe the purpose of U.S. generally accepted accounting principles (U.S. GAAP) and the benefits that these...

1. Accounting is subject to the rules of Generally Accepted Accounting Principles (GAAP), which sets provisions...

Currently, the two major sets of rules related to accounting are Generally Accepted Accounting Principles (GAAP)...

The Financial Accounting Standards Board (FASB) is responsible for the Generally Accepted Accounting Principles (GAAP). Select...

1. Explain which of the Generally Accepted Accounting Principles (GAAP) require the use of depreciation for...