You are an assistant in the accounting department of Hasher Electronics, a small

Question

You are an assistant in the accounting department of Hasher Electronics, a small electronics retailer. Hasher has a loan that requires the company to maintain a minimum cash balance of $ 125,000, as reported on its year- end balance sheet. Although Hasher has struggled in recent years, as of yesterday it looked as though Hasher would be able to meet this requirement. The cash balance in Hasher's general ledger was $ 130,000 and the company's credit manager was expecting to receive a $ 30,000 electronic funds transfer that day on account from your biggest customer. Your department supervisor had been worried about meeting the loan requirement, so she had delayed making payments to Hasher's suppliers for several days. But in anticipation of receiving the EFT, she decided yesterday to issue checks to suppliers totaling $ 15,000.

It is now the last day of the fiscal year and your supervisor approaches you with a problem. Your big customer had backed out at the last minute, indicating it had some financial issues to sort out before it can transfer money to Hasher. The supervisor says the only way Hasher can meet its loan requirement is to put the $ 15,000 back into the Cash account and pretend as if the supplier checks were not issued until after year- end. You questioned whether this would be ethical. Her reply was, well, we don't really have a choice. Either we do this, or we violate the terms of the loan agreement and possibly are forced to repay the loan immediately. That could put us out of business. Think of all the people who would lose their jobs! Just make a journal entry today to increase Cash and Accounts Payable. Then tomorrow we can reduce Cash and Accounts Payable probably before many of our suppliers even get the checks we have written to them.

Required:

1. Who might suffer in the short term if you go along with your supervisor's request? What might happen in the future if you go along with her request this time? If you do not go along, who might suffer in the short term and what could be the long-term consequences?

2. You want to be loyal to your supervisor but honest to others who rely on your work. As an accounting assistant, which of these concerns should be most important? Why?

3. What alternative courses of action can you take? Which of these is best given the circumstances?

Explanation / Answer

1) In the short term , the loan giver would be the one to suffer the most if I go along with the supervisors request. This is because the basic requirement of cash balance of $ 125000 is being erroneously depicted in the financials As per the loan giver , there is adequate cash balance as per the loan requirement but in actual this is not so , and the loan agreement requirement has been violated which is not known to him If I go along with the supervisor , in the future there may be a possibility that the EFT does not come through and the passing of rectification entry may become a problem Also the dates of checks depicted in the bank statement will not be in line with the financials If I do not go along with the supervisor , Hasher Electronics the company will suffer the most as the terms of loan agreement have been violatated and the loan may be recalled 2) Honest to your work is most important , even though it is good to be loyal to your supervisor. But if the supervisor is doing something wrong or unethical , the assisstant should not stand by the supervisor One has to be more loyal to his/her work 3) Alternative courses 1. To discuss with the loan giver the actual situation and explain to him that in actual the bank balance is more than 125000 at the year end , as the checks issued are still in transit and will not hit the bank till next financial year 2. To speak with the vendors who have been issued checks and request them to return the checks, so that Hasher Electronics could cancel the checks and reissue fresh checks once the EFT is received at a new date As per me the 2nd option is better , because then the entry can be correctly reversed and the loan requirement can be met

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