In: Accounting
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:
Explanation :
First of all, the accountant should follow the internal control
procedure laid down to ensure that the invoice being presented to
him is issued by authentic suppliers and examine that it has been
passed and cross checked by appropriate authority for
payment.
To prevent any fake or incorrect payment.
And, as per the accounting rule of double entry system, when one account is debited then another account should also be credited simultaneously related for the same transaction.
In the given situation, the day when co-worker asks to cut a
check of dollar 2000 as a miscellaneous expense to fulfill a VIP
customer supply is the last day of the current year and the closing
entry will be passed thereafter.
So, there will occur to situation:
1. If the cheque is cut today and recorded in books tomorrow. Then
the bank account will be credited in current year and expenses will
be charged in next year the result of recording transaction in such
manner will affect the financial statement of both the year
2. If the cheque is written tomorrow, then expense incurred in current year is charged to next year. such entry is also incorrect, as it will understate cash and profit of next year.
Therefore, correct accounting treatment is to record the expense
and cut the cheque today itself in current year.
If the cheque written by the entity ends up to be erroneous then,