You Are the Auditor of Plastico, Inc

You are the auditor of Plastico, Inc., a manufacturer of plastic products. In reviewing the balance sheet of the company, you notice several receivables from the officers of the company. You report your findings to the president of the company and inform him that these receivables will be considered related party transactions for purposes of financial accounting and reporting. The president seems somewhat annoyed by your comments and asks you to explain what you mean by "related party" transactions and how the financial statements will be affected by these transactions. Prepare a brief response to the president's question.
Related party transactions occur when an enterprise engages in transactions in which one of the parties to the transaction has the ability to influence significantly the policies of the other, or in which one party to the transaction has the ability to influence the policies of the two transacting parties. The following are examples of related party transactions: