Question

On a recent trip to Africa, J.T. Brown, sales manager of Prompt Technology, took his wife along at company expense. Linda White, vice president of sales and Brown's boss, thought his travel and entertainment expenses seemed excessive. But White approved the reimbursement because she owed Brown a favor. White was aware that the company president reviews all expenses recorded in the cash payments journal, so White recorded Brown's wife's expenses in the general journal as follows:

Respond to the following questions and, if appropriate, include personal experience as part of your answers.

• Does recording the transaction in the general journal rather than in the cash payments journal affect the amounts of cash and total expenses reported in the financial statements?
• Why did White record these expenses in the general journal?
• What is the ethical issue in this situation? What role does accounting play in this issue?

Answer 1

Yes, recording transaction in general journal rather than in cash payment affect cash. Because while recording general jouranal expense got booked but against same liability will be raised for example expense of 100 is booked so general journal would be

Expense A/c Dr. 100

To Account payable 100

Here it does not affect cash but expense got recorded. So while going through only to cash book one can not identify this expense.

2. White record this in general journal because his boss is checking cash ledger so passing it general journal dont affect cash book. SO his boss can not find excess expense.

3. Ethical issue :- when books of accounted is presented it does not show true and currect picture. books cash will not tally with physical cash. and once such practice start in organisation it will create trouble for organisation

4. Acoountant should not reimburse. First when he received claim if it is in excess then he should not pass until it got approved from authorized person. And pass entry cash book and general journal becuase it is not correct way.

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