Rebecca Jay is in process of recording adjusting entries for her employer, Happy
ID: 2477786 • Letter: R
Question
Rebecca Jay is in process of recording adjusting entries for her employer, Happy Kennels. She is evaluating the uncollectible accounts and determining the amount of bad debts expense to record for the year. Her employer and owner of Happy Kennels, Giselle Kay, has asked that Rebecca underestimate the amount of uncollectible accounts for the year. Giselle hoping to get a bank loan for an expansion of the kennel facility, and she is concerned that the net income of the company will be too low for a loan to be approved. What should Rebecca do? And you respond to this question, if it were you and this is your job, your source of livelihood, what you would do, are there other options available to Rebecca in terms of what and how they prepare their financial reports.
Explanation / Answer
This is a sitruation of ethical dilemma. On one side Rebecca has the duty as Accountant to fairly report the amount of uncollectibel accounts , on the other hand there is a risk of making the obner unhappy and llosing her job.
In this situation there are a few options available :
1. Check the actual amount of uncollectible accountys. if the required additional provision and the resulting bad debt expense is not coming to a huge amount , the same can be easily explained to the owner as net income will not be affected much.
If the bad debt expense is substantial , then the owner needs to be covinced to put the correct data in financials as that will be questioned by Auditors and misrepresentation of uncollectibe account will amount to accounting fraud to inflate profit and is punishable. If the owner is not convinced, then there is no option left but to leave job or do the adjustment in Accounts.
However , on ethical grounds Rebecca should not manipulate the accounts as it will be a precedence and the problem may not stop here. Once such incidence is strongly resisted , its recurrence in future will be prevented.
Considering all these , Rebecca must try to her level best to resist the adjustement as much practical;ly possible. Even if she has to do the adjustement , she needs to take the calculation in recording and get the revised estimate approved in writing by the owner to save herself from future problems.
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