Whatis the accounting problem that the Linbarger Bottling Company faces? LinbargerBottling Company has a bankreconciliation problem. Bank reconciliation is a monthly process by which financialactivity is matched up on a bank statement to ensure that everything isaccurately recorded in the company books. During the bank reconciliation process accountants must prove that actualfunds balance for insertion into the assets of a company. A bank reconciliation has two parts, the companybook side and the bank side, so afterreconciliation is completed,both balances should match.There certainly can be times whenfinancial records might not be the same as the bank’s. Bank reconciliation willinclude equating these records and classifying any alterations amongst the two.
There are numerous reasons the balance on company records may not be a match tothe bank’s some of them are: 1. Changes to bank accounts at the end of amonth 2. Deposits in transit 3. Bank deducts on loans2.
Whatare the ethical considerations in this case? Provide rationale for why theseare ethical considerations. Ethically,the company is considering three different choices. The first is to default onthe loan by $120,000. The second is to leave the ledger open for an additionalday to allow funding to possibly flow in. The third is to add an additionalline item of $150,000 from a deposit that is allegedly in the mail. In option one, the company could default on the loan and apossible delay in clearing of finances could result in the loss of goodwill andreliability. Which is the right thing to do but can cause consequences for thecompany’s business relationships.
The second option would cause an error in thedates and therefore an inaccuracy in accounting, but ultimately if funding doescome in, the loan term will be met. The third option is to lie, because allegedmoney is being placed on the books that has not been received, or may not everbe received. The last two options ethically test professional integrityand honesty. 3. Whatare the negative impacts that can happen if you do not follow Lisa Infante’sinstructions to wait one more day to post the balance? IfLinbarger Bottling Company defaults dueto the inability to uphold the required cash balance of $200,000 it is verylikely the company will renege on the terms of the loan agreement. The companymight go out of business and employees will lose their jobs. If I as theaccountant do not comply with Lisa’s instructions, I could possibly be firedfor not obeying instructions and for not protecting and saving the businessfrom defaulting on the loan agreement conditions.4.
Who will be negatively impacted if you do comply? Providerationale for why these individuals will be impacted. IfI do comply with her instructions, it is possible that the overall business cansuffer if the $150,000checknever arrives. Rules and laws will be broken if that alleged money is recordedas a receipt. So eventually if it wasdiscovered, the people involved could end up being fired or worse face possiblelegal actions for fraud. The expectation to detect and avoid fraud can be verydifficult for accountants to meet, but the expectancy to advise and warn is notas difficult.
Accountants can better manage fraud risks by communicating andworking with all parties on fraud prevention. Many companies miscalculate theconsequences of fraud, and the amount of damage that can be caused to bothemployees and owners. This is especiallyapparent in the reaction of Lisa, and her encouragement of particular actions. 5.
What is one alternative that you could pursue in thisscenario? Support your recommendations with information you learned in thisclass. Commercialaccounts under normal circumstances usually have a “broker” or another personallocated to their account. The broker can be contacted at the bank, and thesituation could be explained, and a grace period can be requested. This is usually a simple request for accountsin good standing. In order to avoid this situation in the future, a renegotiationof loan conditions may be considered. Or, perhaps a sliding scale of accountaverage calculations could be considered to account for slower vs more equitabletimes of the year.
If times are especially slow without explanation of low cashflow, banks do provide insurance. Insurancepackages from and for the banking system covers various risks, such as theequipment, software and data security, civil liability to third parties, bankfraud staff and management, treasury money, cash, cash in transit, virtuallyeverything in the banking operations. All arrangements require an understanding between the accountant,the business, and the bank. The optimal way to document the understanding iswith an assignation letter signed by all parties. It clearly lays out thenature of the work that the business performs. Describe “the limitations of thework and what is expected.
Accountants should clarify that fraud detection andprevention are management’s responsibilities that all parties understand theassumption of risk in any investment, and that accountants are not responsiblefor the business outcomes.