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Best Exports has noticed their current year net income is only $60,000. In order to get...

Best Exports has noticed their current year net income is only $60,000. In order to get a loan from their bank to assist the business they will need to provide a statement of cash flows. In reviewing the statement of cash flows, you notice a large increase ($80,000) in accounts receivable due to two of your largest customers being behind in payments. Since the bank looks at the operating activities, this increase will create concern. You make a suggestion to reclassify the accounts receivables to long-term, thus removing them from current assets will increase the net cash from operations.

Under what circumstances would this reclassification be considered ethical or unethical? Support your selection by finding an article which explains your choice.

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Answer #1

Well, this is clearly an unethical issue. No question of circumstances where it can be ethical.

According to the GAAP's the account receivables are current assets and should not be treated as long term because they are in the ordinary course of business and are in temporary nature. Treatment of receivables as long term just because to increase the net cash flows to get approved of a loan is clearly an unethical behaviour. Instead they can wait for some time strive to increase the cash and then apply for the loan.

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