The Impact of Recording Memberships as Liabilities on Financial

Hello, According to the author of our textbook, a liability is a "present obligation" to give up an economic resource (such as cash or assets) in the future due to transactions that happened in the past. In this situation, the past transaction is the selling of memberships. The present obligation is to provide campground sites for the members. The relinquishment in the future of resources is giving up those sites to the members instead of selling those sites to non-members. For all these reasons, Trueblood chose to record the memberships as liabilities. The proposal is not ethical. Foster is providing misleading financial information. According to the smallbusiness.chron.com article, revenue from membership sales is an example of the liability-revenue relationship. The selling of the memberships must be recorded as a liability because Trueblood has not provided the goods and services for those revenues. As Trueblood provides the goods and services, the liability will decrease and the revenue will increase. When the memberships are recorded as sales revenue and not as a liability, it increases the net income. This makes outsiders believe that Trueblood has more financial resources than it actually does. There are many people who would be affected if the proposal is implemented. The first group is the investors. They would believe that Trueblood has more equity than it actually does and may invest in a company that is declining. The second group are the creditors. They may believe that they are lending credit to a financially stable organization when, in reality, Trueblood's financial standing is changing. The final group affected by this misleading information are the executives of the company. They need accurate financial information in order to make positive decisions to move the company forward. Hanh Reference: Spiceland, J. D. Intermediate Accounting, 10e. pp. 718, 727 https://smallbusiness.chron.com/liability-revenue-relationship-34624.html E https://www.netsuite.com/portal/resource/articles/accounting/inaccurate-financial-reporting.shtml