As the newly hired Accountant for IUGATE Inc your supervisor

As the newly hired Accountant for IUGATE Inc. your supervisor has asked you to include the $150,000 cash that is expected to be collected in 2016 in the financial statements for the year ending 2015. He argued that one of the company\'s long-term reliable customers has promised to pay his outstanding debt on January 4, 2016. Therefore, it will be no problem including the expected cash in the December 31, 2015 financial statements. Explain what you would do and why.

Solution

As per cash accounting is concerned one should account the receipt or payment only when the actual transaction is taken place. Recording of expected cash collection in advance without receipt will states the overstatement of current assets of cash. It misleads the users of financial statements which should never be done. So we needs to intimate the same to the Key management with the issue if supervisor pressures for the same.