Pay off the account receivable

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Fantasy Graphics is a graphics arts design consulting firm. Terri Bierman, its treasurer and vice president of finance, has prepared a classified balance sheet as of January 31, 2008, the end of its fiscal year. This balance sheet will be submitted with Fantasy Graphics' loan application to Booneville Trust & Savings Bank.

In the Current Assets section of the balance sheet, Terri reported a $100,000 receivable from Kent Miles,the president of Fantasy Graphics, as a trade account receivable. Kent borrowed the money from Fantasy Graphics in November 2006 for a down payment on a new home. He has orally assured Terri that he will pay off the account receivable within the next year. Terri reported the $100,000 in the same manner on the preceding year's balance sheet.

Do you feel that Terri reported this receivable correctly? If not, where should it be classified? Does it make any difference that the receivable is due from a closely related party? If you were in Terri's situation, how would you handle this scenario?

Reference no: EM13153690

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