Khaled company facing its first annual net loss as the end of the year approached and he is under the pressure from the company’s creditors to report positive net income for the year. He told the controller to record the $ 10,000 incoming bank loan as a revenue instead of a loan. That would nudge the company’s income into positive territory for the year, and then, he said, the entry could be corrected in January when the loan was repaid.
1- How this action affect the year-end income statement? How would it affect the year-end balance sheet?
2- If you were one of the company’s creditors, how would this fraudulent action affect you?