Question

On the last day of the fiscal year, a co-worker asks you to cut a check for $2,000 as a miscellaneous expense for supplies in order to complete a project for a VIP customer today. You notice the invoice looks a little different from other invoices that are usually processed. You know that by preparing the closing entries tomorrow, the miscellaneous expense will be set to zero for the beginning of the year.

Respond to the following in a minimum of 175 words:

• Should you write this check today and record the expense or write the check tomorrow?

• How would the company be affected if the check is written and the invoice ends up being erroneous?

Answer 1

(i) Shouldn't write the check today and record the expense or write the check tomorrow.

Explanation:

As per accounting rule, while entering the transactions, there should be Debit and Credit simultaneously. Therefore if i cut a check today for miscellaneous expense for supplies then it should be debited by Miscellaneous expense account and Credited by bank account simultaneously. Otherwise current year net income will wrongly show $2,000 higher.

(ii) Affect the company if the check is written today and the expense is not recorded, then the net income of the current fiscal year will be increased by $2,000 and net income of the next year will be decreased by $2,000. It happens due to error.

Explanation:

If check is written today and expense is recorded tomorrow, then the current year financial statement shows $2,000 higher net income and the amount in the balance sheet will be reduced by $2,000.

Conclusion: I can issue the check and record the expense today.