You are a partner at ABC CPAs. Timmy Schneider, CEO of Iggys Incorporated, is a good friend of yours. He is very concerned about the companys year-end financial statements and asks for your advice. Over the years, Iggys has funded much of its growth by debt. Many of the debt covenants require the company to maintain a 2:1 current ratio. Timmy is worried that the company may not be able to meet the ratio this year.

Timmy indicates that the company has a sizable account payable with Leo Company and the company also has a large long-term receivable from Leo. Timmy has talked to the president of Leo and discussed the possibility of offsetting the payable and the receivable. This would lower Iggys current liabilities and allow it to meet the current ratio requirement. The president of Leo has indicated that he is willing to offset the payable and the receivable but not until after the year-end because he wants to show the receivable from Iggys as a current asset on the balance sheet. While there is an informal agreement for the offsetting, no legal agreement has been signed.

Timmy asks you whether the current arrangement is sufficient to allow the offsetting of the payable and the receivable on Iggys balance sheet. Cite the relevant FASB ASC references to support your answer to Timmys question.