Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because:a. most short-term receivables are not interest-bearing. b. the allowance for uncollectible accounts includes a discount element. c. the amount of the discount is not material. d. most receivables can be sold to a bank or factor.

Question

Nash Wall

Business

14 May, 00:07

Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because:a. most short-term receivables are not interest-bearing. b. the allowance for uncollectible accounts includes a discount element. c. the amount of the discount is not material. d. most receivables can be sold to a bank or factor.

+4

Answers (1)

Know the Answer?

Jacob Mcconnell · Answer 1

Answer: Option C

Explanation: Short term receivables refers to the amount of receivables that are to be received within a year. Thus, discounting a value for just one period with the market interest rate won't make a big change in value.

Hence the discount is usually considered immaterial as it is very small in value.

The discounting method is usually used for the long term investments in which a huge amount is invested for a period more than on year. As interest rates could change the value of a amount received due to their fluctuating nature.

Thus, the correct option is C.