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Problem 1: At the end of each month, the company estimates and books a particular business expense as an adjusting entry because it is subject to delayed billings. Until the company pays the bills, the accrued amounts remain in a liability account on its balance sheet. Because these accruals are estimates, the company reevaluates them periodically to see if they are at appropriate levels. Accordingly, the company routinely adjusts its accruals as it learns more about applicable charges.
a. Good business practice
b. Perfectly ethical, but raises a red flag
c. Improper, but not fraudulent
d. Improper and a possible indicator of fraud
e. Fraudulent accounting
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