Question

In: Accounting

On the last day of the fiscal year, a co-worker asks you to cut a check...

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?

Solutions

Expert Solution

  • Note = ( answer is not lengthy , break into points for your better understanding ).
  • Answer =
  • 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 wrongly shows $2,000 higher.
  • When the invoice looks a little different from other invoices that are usually processed, then such invoice should be processed only after required confirmation regarding its accuracy / validity is received by the accountant.
  • The expense to be recorded and the check should be written only after getting proper confirmation regarding its genuineness / accuracy. It can be done today or tomorrow but only after being sure that the invoice is correct. If accountant is not able to get the information / support through which he/she is not sure regarding the correctness of invoice as of today then expense to be recorded and the check should be written tomorrow only after being sure that the invoice is correct.
  • If expense is recorded and the check is written today, then it will increase the expense for the current year and will reduce the net income for the current year. If later on this invoice is turned out to be erroneous then reversal of accounting entry for this invoice will be required to be posted which will reduce the expense for the next year and will increase the net income for the next year.
  • If expense is recorded in current year and is reversed in next year (because invoice is erroneous) then income of current year will be under reported and income for the next year will be over stated by the amount of this expense.
  • Also cash/bank balance will be reflected as reduced by the amount of this check, for the current year as check is written today in current year. Once the check is reversed in the next year the cash/bank balance will get tallied with cash/bank balance as per bank records.
  • I am so glad you asked for help when you needed it. ?

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