Accel graphics is a graphics design consulting firm.Katy itstreasurer has prepar

Question

Accel graphics is a graphics design consulting firm.Katy itstreasurer has prepared a classified balance sheet as of November31,2010. This balance sheet will be submitted with the firms loanapplication to the bank.
In the current assets section of the balance sheet, Katyreported a $75,000 receivable from Tony, the president of the firm.Tony borrowed the money from the firm in November 2008 for a downpayment on a new home. Tony has orally assured Katy that hewill pay off the account receivable within the next year.Katyreported the$75,000 in the same manner on the preceding year'sbalance sheet.

Using GAAP, ethics ,and professional conduct in business evaluatewhether it is acceptable for Katy to prepare the Nov.31 2010balance sheet in this manner. If not, What changes should me made?Why
Explain throughly.

Explanation / Answer

Katy should not report or prepare he balance sheet with the75000 unless i it taken as drawing since tony is the president ofthe firm he is drawin an not a debtor tothe firm. In other words this amount should be placed in the drawingsection of the balance sheet

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