Question

A city borrows $800,000 in January because it does not receive property taxes until May. It borrows on a tax anticipation note, which it will repay in May when taxes are collected. How would the city classify the proceeds from the note if it were to prepare governmental-type fund financial statements on March 31?

Answer 1

Answer:

Liability

Explanation:

The city classify the proceeds from the note as a Liability if it were to prepare governmental-type fund financial statements on March 31.

Liabilities:

These are the debts which company has to pay. If company has liabilities it means company has to pay to some other entity/supplier or someone for its debts. It includes loans,account payable and many other accounts in financial statement.

In our case company has borrowed $800,000 in January and will repay in May after taxes are collected. If city has to prepare the financial statement before May then this $800,000 will be the liability in the statement.