Case Study:

Brad White is the owner of a delivery service. Since he has an associates degree in accounting, he keeps his own financial records. As you look them over for him, you discover that there are no adjusting entries. As you look further, you find that the prepaid expenses, such as prepaid insurance are expensed at the time payment was made. Also, items like unpaid salaries are not recorded until they are paid (in a new accounting period)

When you ask Brad why he does not record adjusting entries, he replies They are a pain and I dont have the time. Anyhow, we end up in the same place eventually.

Directions:

Write a memo to Brad stating why what he is doing is not following proper accounting procedures (Hint: Dont forget to include the basis of your discussion, the accounting principle).

Paradigm Publishing, Inc. 5^th Edition College Accounting, Robert L Dansby, Burton S Kaliski, Michael D Lawrence.