As assistant controller for a small consulting firm, you are responsible for recording and posting the daily cash receipts and disbursements to the ledger accounts. 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, 2012:

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 for the consulting industry and for our business in particular. 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 the checks on the last day of the month and you normally journalize the transaction on the same day, it is silly to bother posting the entry to the ledger since it takes at least a week for the checks to clear the bank.
Required
1. Explain why the controller's request will result in an increase in net income.
2. Do you agree with the controller that the omission of the entry on June 30 ''will not hurt anyone''? Whom could it hurt? Does omitting the entry provide information that is free from bias? Explain your answer.
3. What would you do if the controller told you to do this? To whom should you talk about this issue? Is this situation an ethical issue? Why or why not?

Transcribed Image Text:

2012 June 30 Cash 1,430 1,950 Accounts Receivable Service Revenue To record daily cash sales and sales on account Advertising Expense Utilities Expense Rent Expense Salary and Wage Expense 3,380 June 30 12,500 22,600 24,000 17400 Cash To record daily cash disbursements. 76,500