As assistant controller for a small firm, you are responsible for recording and posting of the daily cash receipts and disbursements to the ledger account. 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.
Account Receivable 1,950
Service Revenue 3,380
To record daily cash sales and sales on account
Advertising Exp 12,500
Utilities Exp 22,600
Rent Exp 24,000
Salary & Wage Exp 17,400
To record daily cash disbursement
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 in the consulting industry and for our business. 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 checks on the last day of the month and you normally journalize the transaction on the same day, it is silly to bother posting entry to the ledger since it takes at least a week for the checks to clear the bank.
1. Recognize an ethical dilemma: Explain why the controller’s request will result in an increase in net income. On the basis of your answer, what ethical dilemma(s) do you now face?
2. a. Do you agree with the controller that the omission of the journal entry on June 30 ” will not hurt anyone”? Who may benefit from the omission of the entry? Who may be harmed?
b. How are they likely to benefit or be harmed?
c. What rights or claims may be violated?
d. What specific interest are in conflict?
e. What are your responsibilities and obligations?
3. As assistant controller, what are your options in dealing with the ethical dilemma(s) you identified in (1) above?
Which provide stockholders and other outsiders with information that is most relevant, most complete, most neutral, and most free from error?
4. Among the alternatives, which one would you select? explain why?