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Accounting

You are the accountant of a small company that wants to expand. The CEO is negotiating a loan with National Bank, and the bank requires a statement of cash flows. The CEO is concerned because operating cash flows are down compared to prior years. The main reason is deteriorating collections from accounts receivables. The CEO presents three options to address the situation prior to year end and the preparation of the statement of cash flows:

Option 1: convert some of the oldest account receivables to long term notes receivables

Option 2: Sell some receivables to a collector for $.65 per $1 of receivables

Option 3: Delay payment of all outstanding accounts payable until the next year

Required:

a. Comment on the appropriateness of each option
b. Is there an ethical dilemma involved?
c. How would you respond to the CEO

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M954085

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