Better Days Ahead & First National Bank
In the issue of Better Days Ahead and First National Bank certain ethical issues. The agreement between Better Days Ahead to overdraw cash balance when donations are low was made in good faith and out of a long-standing relationship between the two institutions. It can be seen that before appointment Jacob Henson, the provision was rarely utilized mainly due to prudent management which did not necessitate the need for overdrawing. From a practical approach, the provision was arrived at in the understanding that the overdrawing was to be used occasionally but not continuously or persistently.
Going ahead to expand operations, acquire office equipment, and spend large amounts on fundraising with little regard to the level of donation has made the bank run a negative balance consistently. Ethics demand that expenditure should be made with adequate consideration of the level of income. Again, expenditure should be on what is very necessary to avoid unnecessary indebtedness. Certainly, these ethical parameters have not been exercised with the leadership of Jacob Henson.
Steinbach & Sons
The transactions on the Steinbach & Sons as altered by the store accountant serve largely to inflate the earnings of the store. When Mort Steinbach the store manager instructs the accountant to record a $2000 sale of goods which are yet to be shipped from the manufacturer, the accrual principle of accounting is violated. Accounting ethics only allow revenues to be posted in the books of accounts during the period when earned. Again, not recording salaries owed to employees as well as prepaid insurance which is expired reduces the expenses section of the profit and loss account effectively increasing the level of profits. The overall effect on the profit is an increment of $3300.
Steinbach is taking the action of instructing the accountant on ways of boosting the performance to achieve better financial results which when presented to the bank will put the store in a better position to receive a bank loan. This action is unethical as it amounts to a complete misrepresentation of the actual financial position of the stores to misguide the bank. The action helps the store as it ensures access to the loan but it hurts the bank which is to issue the loan in the sense that there are possibilities of issuing a loan which the store may not be able to repay. As a personal friend, I would advise the accountant to ignore the instructions and stand for what is the correct accounting ethics.
Dobbs Wholesale Antiques
In the case of Dobbs Wholesale Antiques, the FOB policy requires the company to record a sale after the shipment. This is in line with the accounting principle of accounting on an accrual basis. This ensures that revenues are recorded in the period when the sale is made.
The decision by the owner to ship the goods in consideration of the level of profitability is not the right thing to do. Even though it is not against the existing accounting rules, it does not portray integrity on the part of the firm. A better way of managing the shipping of the goods would entail establishing a strict timeframe within which a shipment should occur after the placement of the order. This should be followed at all times and regardless of the time of the year. It would effectively eliminate the need to make the decision.