Week 5 Discussion

Week 5 Discussion – Standard Accounting Procedure

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It is standard accounting procedure, or a generally accepted accounting principle (GAAP), to make a journal entry to remove the current year’s principle from the long-term liabilities. This entry reduces the long-term liabilities and increases the current liabilities.

Your company has a bank loan that requires a current ratio of 1.5 times. The owner has asked you, the bookkeeper, not to make the adjusting entry that would take the current portion from the long-term liabilities.

Respond to the following in a minimum of 175 words:

If you make the adjusting entry, the company’s loan will need to be repaid immediately (or the loan called). What should you do?