If Jack considers the cash flow problems [in actually prepaying these expenses], and instead simply accrues these projected expenses in July, Jack then solves Diane's problems.

1. From an accounting perspective, is Jack's action "no harm, no foul"? Why? 2. How would management decisionmaking and flexibility in August and September be impacted by Jack's actions? 3. If Jack prepaid the expenses, should they be recorded as Diane hopes? Why?

The director of marketing for HiPlex, Diane Kelly, had the following discussion with Jack Andrews, on July 22. Diane: Jack, it looks like Im going to spend much less than allowed in my July budget. Jack: Thats great. Diane: Well, Im not so sure its good news. Im concerned that the president will see that Im under budget and will reduce my budget in the future. The only reason that I look good is that we have delayed an advertising campaign. Once the campaign hits in September, Im sure my actual expenditures will go up. We are also having our sales convention in September. Having the advertising campaign and the convention at the same time is going to kill my September numbers. Jack: I dont think thats anything to worry about. We all expect some variation in actual spending from month to month. Whats really important is to stay within the budget for the year. Does that look as if its going to be a problem. Diane: I dont think so, but just the same, Id like to be on the safe side. Jack: What do you mean? Diane: This is what Id like to do. I want to pay the convention-related costs in advance this month. Ill pay the hotel for room and convention space and purchase the airline tickets in advance. In this way, I can change all these expenditures to Julys budget. This would cause my actual expenses to come close to budget for July. Moreover, when the big advertising campaign hits in September, I wont have to worry about expenditures for the convention on my September budget as well. The convention costs will already be paid. Thus, my September expenses should be pretty close to budget. Jack: I cant tell you when to make your convention purchases, but Im not too sure that it should be expensed on Julys budget. Diane: Whats the problem? It looks like no harm, no foul to me. I cant see that theres anything wrong with this its just smart management.