This case illustrates the application of the conditions for offsetting of financial assets and financial liabilities.
Facts
Entity A has a legal right to set off cash flows due to Entity B (i.e., payables of Entity A) against amounts due from Entity B (i.e., receivables of Entity A). Entity A has these payables to Entity B: $1,000,000 on March 31, $3,000,000 on June 30, and $2,500,000 on October 31. Entity A has these receivables from Entity B: $500,000 on January 15, $4,000,000 on June 30, and $1,000,000 on December 15.
Required
Indicate the extent to which Entity A can set off the aforementioned receivables and payables in its balance sheet, assuming it has an intention to settle offsetting amounts net or simultaneously on each settlement date.