The document discusses the proper classification of a mortgage on a non-profit organization's balance sheet. It argues that according to GAAP, the mortgage should be reported as a long-term liability, with only the principal due within the next 12 months classified as a current liability. Reporting the full mortgage amount as a current liability would misrepresent the organization's financial position and could mislead donors into believing the organization is in more financial distress than it actually is. However, classifying it as a current liability could make sense if the organization realistically plans to pay off the entire mortgage within the year. The document concludes accurate financial reporting and ethical standards are important in accounting.
The document discusses the proper classification of a mortgage on a non-profit organization's balance sheet. It argues that according to GAAP, the mortgage should be reported as a long-term liability, with only the principal due within the next 12 months classified as a current liability. Reporting the full mortgage amount as a current liability would misrepresent the organization's financial position and could mislead donors into believing the organization is in more financial distress than it actually is. However, classifying it as a current liability could make sense if the organization realistically plans to pay off the entire mortgage within the year. The document concludes accurate financial reporting and ethical standards are important in accounting.
The document discusses the proper classification of a mortgage on a non-profit organization's balance sheet. It argues that according to GAAP, the mortgage should be reported as a long-term liability, with only the principal due within the next 12 months classified as a current liability. Reporting the full mortgage amount as a current liability would misrepresent the organization's financial position and could mislead donors into believing the organization is in more financial distress than it actually is. However, classifying it as a current liability could make sense if the organization realistically plans to pay off the entire mortgage within the year. The document concludes accurate financial reporting and ethical standards are important in accounting.
The document discusses the proper classification of a mortgage on a non-profit organization's balance sheet. It argues that according to GAAP, the mortgage should be reported as a long-term liability, with only the principal due within the next 12 months classified as a current liability. Reporting the full mortgage amount as a current liability would misrepresent the organization's financial position and could mislead donors into believing the organization is in more financial distress than it actually is. However, classifying it as a current liability could make sense if the organization realistically plans to pay off the entire mortgage within the year. The document concludes accurate financial reporting and ethical standards are important in accounting.
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1st Mark
only 100 wds
I think Raffies Kids should report the mortgage as a long term liability on their balance sheet. Even though the board wants to pay the mortgage off in full next year, that does not necessarily mean they will be able to. Under GAAP with a loan payable that requires monthly payments for several years, only the principal due in the next twelve months should be reported on the balance sheet as a current liability. (Balance Sheet) Under this rule, I would advise the board to list the current liabilities for the mortgage as $20,000 because that is the amount of principal due in the next twelve months.
Listing the mortgage as a long term liability will also make Raffies Kids current ratio better. This could also help them within the next year if they decide not to pay off the mortgage but want to expand their facility instead. A bank would see current liabilities as a far lesser amount if the mortgage was under long term liabilities. I feel that listing the mortgage as a long term liability follows more closely with the GAAP standards and will also give the business more flexibility in the future. The unethical issue that would arise from listing the mortgage as a current liability is the nonprofit business model and what the board may be trying to do. By listing the mortgage as a current liability donors may be inclined to give more money to Raffies Kids business because they think that the business has a vast amount of current liability and could fail if donations are not received. Adding the mortgage to the current liabilities is a sneaky way to look desperate for funding even though the business is fine.
RESPONSE
Incredible portray yet I'll include something. I accept Company has a home loan advance payable and is obliged to make regularly scheduled installments of $3,000 for every month. Each of the regularly scheduled installments incorporates a $2,850 important installment in addition to more or less $1,50 of investment. This implies that amid the following 12 months, the organization will be obliged to reimburse $34,200 ($2,850 x 12 months) of main. The fundamental essential installments due inside one year of the monetary record date must be accounted for as a current obligation. The staying essential of $252,800 ($287,000 less $34,200) will be accounted for as a long haul obligation.
REFRENCE: "Professional Accounting Bodies' Perceptions of Ethical Issues, Causes of Ethical Failure and Ethics Education" (Registration required). Managerial Auditing Journal 22 (9): 928 http://libproxy.sdsu.edu/login?url=http://proquest.umi.com/pqdweb?did=1347117971&si d=1&Fmt=3&clientId=17862&RQT=309&VName=PQD
2nd Tessa
only 100wds
I see this scenario from two point of views. The mortgage should be reported on the balance sheet as a long-term liability, not a current liability. Long-term liabilities are liabilities that do not need to be paid within one year or within the entitys operating cycle, whichever is longer. Many Notes Payable are long-term, such as a mortgage on a building. (Stat Nobles) Even though the board hopes to pay the mortgage off in full in the next year, does not mean that they can report it is a current liability. Since it is actually a long-term liability, it does not need to be paid within one year. The ethical issue here is that technically it is a long-term liability, that is how a mortgage is classified. If they report it as current liability, as previously stated, it would not be reporting correctly.
On the other hand, if liabilities are liabilities that are due within the next 12 months, then I could see how the non-profit organization would classify or reort the mortgage as a current liability. If they are planning to pay it all in the year then I guess, maybe it could qualify as a current liability. They should also keep in mind that An increase in accounts payable decreases net income because of the associated expense. (Flows)
RESPONSE
Extremely Nice Actually Accounting is a vocation field where high morals and ethics are imperative character characteristics for people. Dellaportas, Steven (June 2006). Poor bookkeeping morals can lead organizations into liquidation from disgracefully reported budgetary data. Extortion Accountants with poor moral norms may direct deceitful exercises, for example, overbilling customers or deferring seller installments. Most extortion cases include concealing money for inner purposes. Theft Accountants may steal from their executives when given an excess of obligation and little oversight. These circumstances give bookkeepers more control than would normally be appropriate and the capability to delude their superintendents on budgetary data. REFRENCE: Dellaportas, Steven (June 2006). "Making a Difference with a Discrete Course on Accounting Ethics" Journal of Business Ethics 65 (4): 391404. http://libproxy.sdsu.edu/login?url=http://proquest.umi.com/pqdweb?did=1069642791&sid=13& Fmt=2&clientId=17862&RQT=309&VName=PQD
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