When firms that are temporarily short of cash and unable to borrow from usual sources convert accounts receivable into cash by pledging the accounts receivable, they disclose this information
A)on the income statement, only.
B)on the balance sheet, only.
C)on both the income statement and the balance sheet.
D)by a footnote to the financial statements.
E)in managements' discussion and analysis.

Question

Quizplus · Accepted Answer

When firms convert accounts receivable into cash by pledging them, this is considered a type of financing activity that would be disclosed in a footnote to the financial statements. This disclosure would provide information about the terms of the arrangement, such as the interest rate and any fees charged by the lender. The income statement and balance sheet may be affected by the financing activity, but the disclosure of the arrangement would not typically be made on these statements themselves.

When Firms That Are Temporarily Short of Cash and Unable