Jaime is reviewing the USFFs. of a client and finds an accounting item that is repeated year after year in the Company's Balances. These are Deliveries to Account, which amount to $.100,000. Intrigued, he asks the client in question and receives as an answer that "they correspond to money deliveries that were made to a third party, to carry out commercial transactions on behalf of the company, which unfortunately did not materialize and were not returned."
Given this, Jaime wonders: Should these Deliveries to Account for the Assets of the company be kept or withdrawn ?.
To answer Jaime it is important to know what is meant by Assets. According to definition: “they are the resources controlled by the company, as a result of transactions and other past events, from the use of which economic benefits are expected to flow to the company”.
Given this, I wonder: Does the company expect to recover the Deliveries to Accountability ?. Definitely not!.
Therefore, the Balance Sheet Assets, due to the reliability of the Financial Information, should not include the Deliveries to Account.
If so, what would happen to the company? Simply put, you would have to spend the Deliveries to Account, affect your Results and adjust your Assets.
The problem for Jaime is that, precisely, the Company's Equity is around $ 100,000 and if the Deliveries to Render are spent, the company would be left practically without equity and with an extremely high indebtedness, revealing that, During all this time, the business worked with third party money, since it was totally undercapitalized; which makes it impossible to be a credit subject in any Financial Institution.
Definitely, the decision Jaime must make is obvious.
The teaching of this situation is that Credit Analysts should review the Balance sheet items, no matter how obvious they seem. For example, inventories, in order to assess their obsolescence and Commercial Accounts Receivable and Loans to third parties, to verify their collectibility. Perhaps you could be repeating Jaime's case without even knowing it.
Another important point, which we must consider, is the practice of some credit institutions of not considering for the calculation of the working capital and the liquidity ratio, the Deliveries to Account, the Deferred Charges and the Loans to Third Parties.
