Final answer:
This means the correct answer to the question is: 2) False.
Step-by-step explanation:
When specific receivables are assigned as collateral for a loan, financing liability should not be netted against the accounts receivable on the balance sheet. Instead, the accounts receivable are typically reported at their gross amount, and the amount of the loan (financing liability) is reported separately in the liabilities section. This is because while the receivables serve as collateral, until they are actually collected, they remain an asset of the company. This practice is in accordance with the accounting principle of full disclosure, which requires that the nature and amount of the financing arrangement be disclosed separately from the assets.
For example, if a company has $100,000 in accounts receivable and uses them as collateral for a $50,000 loan, the balance sheet will show $100,000 accounts receivable under current assets and $50,000 as a liability (loan payable or notes payable) separately. Any details about the arrangement, such as the receivables used as collateral, would be note in the accompanying notes to the financial statements.