Accounting Standards Codification 210 (ASC 210) was released to address the more specific topic of presentation of the Balance Sheet.
Presentation of the balance sheet is very important to investors and user of the financial statements because it allows them to track how a business is managing its assets, liabilities, and equity. A company can easily be analyzed as one that could acquire another if it has a large amount of cash on hand, or facing potential bankruptcy if it has high liabilities and little shareholders equity.
ASC 210-20 Offsetting
The general principle of offsetting relates to that of assets and liabilities. This says that:
1. It is not proper to offset assets and liabilities in the balance sheet.
2. An exception is when a right of setoff exists
Right of setoff
Debtor’s right to “discharge” the debt by applying against the debt an amount that “other party” owes to the debtor:
Right of setoff exists if all of the following are satisfied:
1. Amounts of debt are determinable
2. Reporting entity has the “right” to setoff
3. The right is enforceable by law
4. Reporting entity has the “intention” to setoff
*Technical versions of the standards, authoritative literature can be found in the Financial Accoutning Standards Board website.
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