Ethical Obligations and Decision-Making in Accounting 2nd Edition by Steven Mintz, Roselyn Morris

Exercise 14

Explain why off-balance-sheet-financing techniques are used by companies to keep debt off the books. In particular, how do the accounting rules for lease transactions create the potential for off-balance-sheet financing? If a company treats a lease as an off-balance sheet debt, what steps should it take to ensure that the financial results present fairly financial position with respect to this transaction?

Step 1 of 4

Financial statement:

The financial statement is the statement of the company position at a particular time period.

Every company prepares four types of financial statement:

1. Income statement (Profit and loss statement)

2. Statements of owner’s equity

3. Balance Sheet

4. Cash flow statement.

Income Statement:

The statement of revenue and expense is called an income statement. It provides external and internal users information about the profitability of the organization.

Balance sheet:

The statement of assets, liability, and equity is called a balance sheet. It prepared after the income statement. It provides external and internal users information about the financial position of the company.