Q: Do you usually consider officer receivables as current assets or treat them as intangible/long-term?
A: Yes, for the purpose of calculating key performance ratios, officer receivables would be considered an intangible asset. The same is true of loans to shareholders. For teaching purposes, we did not deduct the shareholder loan from our calculations in order to focus on the calculation methodology and the significance of each key performance ratio.
The key issue is that an increase in a loan to a shareholder is cash out of the company to the shareholder. The cash loaned to the shareholder, along with distributions to the shareholder, is for the purpose of paying the personal income tax obligation on company profit of an S-Corporation, such as Total Coverage, and for all other non-subchapter C business organizations. The amount of the loans and distributions in excess of the personal income tax obligation on the company profit is really compensation and is properly classified an operating expense.
A: Yes, for the purpose of calculating key performance ratios, officer receivables would be considered an intangible asset. The same is true of loans to shareholders. For teaching purposes, we did not deduct the shareholder loan from our calculations in order to focus on the calculation methodology and the significance of each key performance ratio.
The key issue is that an increase in a loan to a shareholder is cash out of the company to the shareholder. The cash loaned to the shareholder, along with distributions to the shareholder, is for the purpose of paying the personal income tax obligation on company profit of an S-Corporation, such as Total Coverage, and for all other non-subchapter C business organizations. The amount of the loans and distributions in excess of the personal income tax obligation on the company profit is really compensation and is properly classified an operating expense.