It is stand accounting procedures, or GAAP, to make an adjusting 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. You are the bookkeeper for Biker’s Business. Biker’s Business has a bank loan that requires a current ratio of 1.5 times. The owner has asked that you do not make the adjusting entry to take the current portion from the long-term liabilities. You know if you make the adjusting entry Biker’s Business’ loan will need to be repaid immediately (or the loan called). What should you do?

There's only one ethical answer, isn't there?

You ought to pursue the GAAP (sound accounting guidelines) and do the correct altering passage. You may recommend the proprietor look for changed types of financing that would not require maintenance of a 1.5 current proportion.

Also, you can offer to meet with the investor and endeavor to acquire a waiver of the present proportion, current proportion necessity for the present time frame.

I would pursue the standard bookkeeping strategy or GAAP and pass the changing passage and the current segment of the advance. This can be clarified by talking the precedent.

Assume before making any installment biker's business has current resources $200,000 and current liabilities $100,000. Before paying any current bit of the credit current proportion is

Current proportion = Current proportion/Current liabilities

= $350,000/$250,000

= 1.4 times

Assume the current bit of the long haul liabilities is $50,000. When he reimburses the current part of the credit will lessen both the present resources and current liabilities as current segment of the advance will be paid in real money. Subsequent to paying the current part of the credit then its present proportion will wind up equivalent to

Current proportion = Current proportion/Current liabilities

= $350,000-$50,000/$250,000-$50,000

= $300,000/$200,000

= 1.5 times

Consequently, in the wake of paying the current bit of the advance the present proportion has expanded from 1.4 times to 1.5 times as required bvy the bank. Therefore, proprietor isn't right and he should pass the changing section for reimbursing the current segment of the credit.

As the bookkeeper for Biker's Business, you have encountered a situation where there is a conflict between adhering to the generally accepted accounting principles (GAAP) and the owner's request. Let's break down the steps to determine what you should do in this scenario:

1. Understand the adjusting entry: According to GAAP, it is standard accounting practice to make an adjusting entry to remove the current year's principle from long-term liabilities. This adjustment reduces the long-term liabilities and increases the current liabilities.

2. Consider the loan agreement: Biker's Business has a bank loan that requires a current ratio of 1.5 times. The current ratio is a measure of a company's ability to cover short-term obligations. The loan agreement might specify that a current ratio below the required level could trigger an immediate repayment obligation or loan recall.

3. Evaluate the owner's request: The owner has asked you not to make the adjusting entry because they are concerned that it could result in the loan being called for immediate repayment. By not making the adjusting entry and leaving the current portion of the loan in the long-term liabilities, the current ratio may meet the required level, avoiding triggering the immediate loan repayment obligation.

Now, let's consider the possible courses of action:

a) Follow GAAP: If you adhere strictly to GAAP, you should make the adjusting entry to remove the current year's portion from long-term liabilities. This accurately reflects the financial position of the company but might trigger the loan repayment obligation.

b) Comply with the owner's request: If you decide to comply with the owner's request and not make the adjusting entry, this could potentially avoid calling the loan for immediate repayment. However, this is not in line with GAAP and may present a misrepresentation of the company's financial position in the financial statements.

Ultimately, the decision rests with you as the bookkeeper. You may want to consider discussing the potential consequences of both options with the owner and consult with a financial professional or accountant to ensure the best course of action is taken, taking into account both the technical accounting requirements and the owner's concerns. It is important to be transparent about the potential impacts on the financial statements and the risks associated with non-compliance with GAAP.