Reference no: EM132512876

Debit and Credit

You are controller for an architectural firm whose accounting year ends on December 31. As part of the management team, you receive a year-end bonus directly related to the firm's earnings for the year. One of your duties is to review the journal entries recorded by the bookkeepers.

A new bookkeeper prepared the following journal entry:

Dec. 3 Cash 10,000

Service Revenue 10,000

(To record deposit from client.)

You notice that the explanation for the journal entry refers to the amount as a deposit, and the bookkeeper explains to you that the firm plans to provide the services to the client in March of the following year.

Required:

Question 1. Did the bookkeeper prepare the correct journal entry to account for the client's deposit? Explain your answer.

Question 2. How would you act as a controller for the firm? Do you have a responsibility to anything to correct the books? Explain your answer.

Delay in Posting Journal Entry

As assistant controller for a small consulting firm, you are responsible for recording and posting the daily cash receipts and disbursements to the ledger accounts. 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

Accounts Receivable 1,950

Service Revenue 3,380

(To record daily cash sales and sales on account.)

Advertising Expense 12,500

Utilities Expense 22,600

Rent Expense 24,000

Salary and Wage Expense 17,400

Cash 76,500

(To record daily cash disbursements.)

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 for the consulting industry and for our business in particular. 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 the checks on the last day of the month and you normally journalize the transaction on the same day, it is silly to bother posting the entry to the ledger since it takes at least a week for the checks to clear the bank.

Required:

Question 1: Recognize any ethical dilemma and explain why the controller's request will result in an increase in net income. On the basis of the dilemma identified, analyze the key elements in the situation and share if you agree with the controller that the omission of the journal entry on June 30 ''will not hurt anyone''? If you disagree, who may benefit from the omission of the entry? And who may be harmed? As an assistant controller, what are your options in dealing with the ethical dilemma(s) you identified and how do you handle it?