Question

Delay in Posting of a Journal Entry

As assistant controller for a small firm, you are responsible for recording and posting of the daily cash receipts and disbursements to the ledger account. After you have posted the entries, your boss, the controller, prepares a trial balance and the financial statements. You make the following entries on June 30.

Cash                        1,430

Account Receivable 1,950

            Service Revenue       3,380

To record daily cash sales and sales on account

Advertising Exp        12,500

Utilities Exp               22,600

Rent Exp                   24,000

Salary & Wage Exp 17,400

          Cash                             76,500

To record daily cash disbursement

The daily cash disbursements are much larger on June 30 than on any other day because many of the company's major bills are paid on the last day of the month. After you have recorded these two transactions and before you have posted them to the ledger accounts, your boss comes to you with the following request:

As you are aware, the first half of the year has been a tough one in the consulting industry and for our business.  With first-half bonuses based on net income, I am wondering whether you or I will get a bonus this time around. However, I have a suggestion that should allow us to receive something for our hard work and at the same time not hurt anyone. Go ahead and post the June 30 cash receipts to the ledger, but don't bother to post that day's cash disbursements. Even though the treasurer writes checks on the last day of the month and you normally journalize the transaction on the same day, it is silly to bother posting entry to the ledger since it takes at least a week for the checks to clear the bank.

1. Recognize an ethical dilemma: Explain why the controller's request will result in an increase in net income. On the basis of your answer, what ethical dilemma(s) do you now face?

2. a. Do you agree with the controller that the omission of the journal entry on June 30 " will not hurt anyone"? Who may benefit from the omission of the entry? Who may be harmed?

     b. How are they likely to benefit or be harmed?

     c. What rights or claims may be violated?

     d. What specific interest are in conflict?

    e. What are your responsibilities and obligations?

3. As assistant controller, what are your options in dealing with the ethical dilemma(s) you identified in (1) above?

   Which provide stockholders and other outsiders with information that is most relevant, most complete, most neutral, and most free from error?

4. Among the alternatives, which one would you select? explain why?

Answer 1

1.Controller’s Words not to record the journal entries in ledger on 30^th june the major cash disbursements of 76,500.

If cash disbursements of income is not shown it will show an inflated Net Income of 76,500.

This Is will not give a fair view of the books of accounts. Which is the responsibility on the part of a person to maintain the entries.

The controller is aware that first half is tough for the industry and to show the higher net income the portion of expenses he wants to keep it undisclosed. He shows personal interest of half yearly bonus as a basis.

Where Ethical Dilemma is – Here Own Job responsibility and Senior’s words may that it will not affect the bank position for the day. But as cheque is prepared on the date, it should record as per job responsibility. May Bank balances may not change on the day. To maintain Job responsibility and keeping bonus interest with senior words may be dilemma Here.

2.a)I think the omission of the journal will hurt the company.

The benefit from the omission of the entry will be to those, who have bonus or income receivables are dependent on the income of a certain period.

If for a particular period the true picture is affected the total performance for the period shows a inflated picture which effects the stockholders/outsiders.

b)The Persons whose Total income includes a bonus / income on the basis of Net Income to be declared.

On the basis of the Net income – The companies higher management takes decision accordingly. But, If it is not an actual – then the overall stock holders and outsiders who also looks into the performance of the company becomes an error one. Which harm them by taking wrong decisions.

When Yearly figures will be drawn or periodic comparison to be done for decisions it will be a disclosure error in system.

c)Rights of True and Fair view of Maintenance of accounts.

Or, faithful representation of accounts is violated through the act.

Which is foremost in accounts and audit..

d)Personal income and between Professional ethics.

e)As a assistant controller the responsibilities is to record the journal entries daily in the books. It is also my professional obligations to maintain the accounts error free and unbiased.

3)According to the professional responsibility and also to represent a faithful representations of the picture of business which must be error free, unbiased and complete to maintain the professional ethics.

4)To maintain the professional the error free , unbiased and complete accounts entry to be done.

Here, as a professional responsibility to maintain a financial statements faithful presentations.