When a business enterprise enters into what is referred to as off-balance-sheet financing, the company
A) is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet.
B) wishes to confine all information related to the debt to the income statement and the statement of cash flow.
C) can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost.
D) is in violation of generally accepted accounting principles.

Question

Quizplus · Accepted Answer

Off-balance-sheet financing enables a company to show a lower debt-to-equity ratio and leverage which can enhance its financial position and potentially qualify for credit at a lower cost. It is not an attempt to conceal debt or a violation of accounting principles. The information related to off-balance-sheet financing is disclosed in the footnotes of financial statements.

When a Business Enterprise Enters into What Is Referred to as Off-Balance-Sheet