Financial statements are issued for various purposes. They are issued by corporations as an inducement to the public to buy shares of stock. They are issued by individuals as a basis for obtaining employment. They are issued for public record. They are issued as an inducement to others to buy various kinds of property. They are issued for the purpose of obtaining money loans and other property on credit. In this work, we shall discuss only those financial statements which are given for the purpose of obtaining the delivery of goods or the loan of money, on credit. § 2. Representations deemed material. According to adjudicated cases and according to the recognized practice among business men, the following representations are deemed to be material in the extension of credit on the basis of a financial statement:1 (a) Representations as to assets; (b) Representations as to liabilities, including deferred, contingent, and secured obligations; 1. See section 9. Practical considerations. (c) Representations as to net worth; (d) Representations as to gains claimed to have been made in the business; (e) Representations as to particular obligations, such as indebtedness to friends or to relatives; (f) Representations as to the amount of accounts and bills receivable; (g) Representations as to the character of accounts and bills receivable; (h) Representations as to the amount of sales; (i) Representations as to the amount of expense; (j) Representations as to selling terms given the trade; (k) Representations as to profit made on sales. § 3. Practical considerations. Ordinary care will prompt the credit manager to use the following precautions in considering the debtor's financial statement: (a) The statement should show on its face that it is a continuing representation of the debtor's condition, in the absence of notice of a change for the worse in debtor's financial condition. (b) The statement should have no unanswered blanks. (c) The statement should not only be a complete statement of the debtor's financial condition, but the fact that it is a complete statement, should appear above the debtor's signature. (d) The statement should show on its face that it is given for the purpose of obtaining credit, and not alone for rating purposes. Forms in use. (e) In case the debtor is unfamiliar with the English language (or the language spoken where the statement is given), he should bring with him, an interpreter of his choice, whose name should be affixed to the financial statement as a witness. (f) All debts should fall due in case of debtor's insolvency, or in case a trust mortgage for creditors is given, or in case a general assignment is made by debtor, or if upon an execution sale, the debtor's stock is sold, or a transfer thereof is made in violation of the Bulk Sales Law. § 4. Forms in use. Various classes of business require slightly different forms for financial statements. The following forms were selected from a large number of those in use, with the writer's comments as to each form: |