1. What is the accounting problem that the Linbarger Bottling Company faces? Linbarger has a bank
reconciliation problem. Bank reconciliation stimulates
the accountant to prove an actual funds balance for insertion into the assets
of a company at any time. Bank reconciliation is a monthly process by which
activity is matched up on a bank statement to ensure that everything is
accurately recorded in the company books. Though banking has moved more towards
automatic and electronic transactions, it is still analytically important to
ensure the cash balance is correct. A bank reconciliation has two parts, the company
book side and the bank side. After
reconciliation is complete,
both balances should match (Onuoha & Amponasah, 2012). There certainly can be times when
financial records might not be the same as the bank. Bank reconciliation will
include equating these records and classifying any alterations amongst the two.
This is vital for keeping record of a company’s money. There are numerous
reasons the balance on company records may not be a match to the bank’s: 1.
hasn’t yet cashed a check you’ve sent. 2. Changes to bank accounts at the end of a
month 3. Deposits in transit 4. The
bank deducts loan payments (Klein, 2015, p. 5)
are the ethical considerations in this case? Provide rationale for why these
are ethical considerations. Ethically,
the company is considering three different issues. The first is to default on
the loan by 120,000. The second is to leave the ledger open for an additional
day to allow funding to possibly flow in. The third is to add an additional
line item of 150,000 from a custom that is allegedly in the mail. The second
option would cause an error in the dates and therefore an inaccuracy in
accounting, but ultimately if funding comes in the loan term will be met. The
third option ethically is a lie, because alleged money is being placed on the
books that has not been received, or may not be received. In option one, the
company could default on the loan. A little delay in clearing of finances could
result in the loss of goodwill, which can cause consequences for the company’s
business relationships. Ethical traits being tested include
professionalism, integrity, professional honesty, and reliability (Onuoha
& Amponasah, 2012).
are the negative impacts that can happen if you do not follow Lisa Infante’s
instructions to wait one more day to post the balance? If
Linbarger defaults due to the inability to uphold the required cash balance of
$200000, it is very likely the company will renege on the terms of the loan
agreement. The company might go out of business soon and employees will lose
their jobs. If I as the accountant do not comply with Lisa’s instructions, I
could possibly be fired for 1.not obeying orders and 2. not saving the business
from default of the loan agreement conditions.
4. Who will be negatively impacted if you do
comply? Provide rationale for why these individuals will be impacted. If
I do comply with her instructions as the accountant, it is possible that the
overall business can suffer since the check is not in hand, and accounting
rules will be broken if that alleged money is recorded as a receipt. Integrity is on the line, so eventually if
found out, I still could end up being fired with possible legal consequences
for fraud. The expectation to detect and avoid fraud can be very difficult for accountants
to meet, but the expectancy to advise and warn is not as difficult. Accountants
can better manage fraud risks by communicating and working with all parties on
fraud prevention. Many companies miscalculate the consequences of fraud, and
the amount of damage that can be caused to both employees and owners (Klein,
2015). This is especially apparent in the reaction of Lisa, and her
encouragement of particular actions. 5.
What is one alternative that you could pursue in this scenario? Support your
recommendations with information you learned in this class.
Commercial accounts under
normal circumstances usually have a “broker” or another person allocated to
their account. The broker can be contacted at the bank, and the situation could
be explained, and a grace period requested.
This is usually a simple request for accounts in good standing. In
order to avoid this situation in the future, a renegotiation of loan conditions
may be considered. Or, perhaps a sliding scale of account average calculations
could be considered to account for slower vs more equitable times of the year.
If times are especially slow without explanation of low cash flow, banks do
provide insurance. Insurance
packages from and for the banking system covers “various risks, such as the
equipment, software and data security, civil liability to third parties, bank
fraud staff and management, treasury money, cash, cash in transit, virtually
everything in the banking operations” (Negurita & Ionescu, 2016, p. 330).
All arrangements require an understanding between the accountant,
the business, and the bank (Klein, 2015). The optimal way to document the
understanding is with an assignation letter signed by all parties. It obvious
to clearly lay out the nature of the work that the business performs. Describe “the
limitations of the work and what is expected. Accountants should clarify that
fraud detection and prevention are management’s responsibilities that all
parties understand the assumption of risk in any investment, and that accountants
are not responsible for the business outcomes” (Klein, 2015, p. 6).