Question

Mills Corporation has a practice of discounting the notes receivable to the bank to increase its cash flow. Since the maker of the notes receivable has always paid the bank, Mills Corporation does not list the notes receivable as a contingent liability. Is this an ethical practice? What would be compromised if the liability did not appear in the notes of the annual report?

Answer 1

Not reflecting Note Receivable in financial statement is an unethical practice.

Non-appearance of note Receivable will effect the income statement and in turn will not show the income correctly.As a result financial statement also will be incorrect.