Accounting Applications Series

The setting

KESTREL SUPPLY's bank reconciliation for March is out by $2,340. The controller has suggested posting the difference to a suspense account so the quarter can close on Friday, and has asked you to look at it first.

Your role

You are to assume the role of an accounting associate at KESTREL SUPPLY.

Your task

KESTREL SUPPLY is a wholesale distributor with a small accounting team. Its March bank reconciliation shows a book balance of $48,610 against a bank statement balance of $46,270, a difference of $2,340. The team has already confirmed that all deposits were recorded and all cleared cheques are accounted for.

The quarter closes on Friday, and the controller is under pressure to deliver the financial statements on time. The controller has suggested posting the $2,340 to a suspense account so the books balance, and investigating after the close.

The controller (judge) wants you to explain how the difference should be resolved. Explain how journal entries are posted to the general ledger and where a difference of this kind typically originates, explain how business transactions are journalized so you can trace it, explain the nature and scope of the financial-information management function, explain the role of ethics in financial-information management when a deadline is pressing, and explain how automated accounting records should be preserved through the investigation.

Performance indicators

• Post journal entries to general ledger accounts.
• Journalize business transactions.
• Explain the nature and scope of the financial-information management function.
• Explain the role of ethics in financial-information management.
• Preserve automated accounting records.

The judge will ask

1. 1.Where would you look first for a $2,340 difference?
2. 2.What do you do if you cannot find it by Friday?

The setting

HALLIDAY GROUP signed a $180,000 annual service contract on 28 December for work that begins in February. The sales director wants the whole amount recognised in the year just ending, which would meet the annual target on which everybody's bonus depends.

Your role

You are to assume the role of an accounting associate at HALLIDAY GROUP.

Your task

HALLIDAY GROUP provides facilities management services to businesses. On 28 December, the sales team signed a new annual contract worth $180,000, covering services from 1 February through 31 January of the following year. The client will be invoiced in twelve equal monthly instalments of $15,000.

Without the contract, HALLIDAY will finish the year roughly $140,000 short of its annual revenue target, a target on which every manager's bonus depends. The sales director has asked the accounting team to record the full $180,000 as revenue in the year that has just ended.

The finance director (judge) wants you to explain how the contract should be recorded. Explain the role of ethics in financial-information management when the pressure comes from inside, compare the treatment required under generally accepted accounting principles, explain the nature and scope of the financial-information management function, explain the nature of the accounting cycle and which period the revenue belongs to, and discuss the levels and types of external financial reporting that depend on getting it right.

Performance indicators

• Explain the role of ethics in financial-information management.
• Compare U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).
• Explain the nature and scope of the financial-information management function.
• Discuss the nature of the accounting cycle.
• Discuss the levels and types of external financial reporting.

The judge will ask

1. 1.How should the $180,000 be recognised, and over what period?
2. 2.What do you say when you are told the whole team's bonus depends on it?

The setting

The petty cash tin at BRACKENFIELD is $310 short across two months. Six people hold keys, no log has been kept since spring, and every withdrawal was supposed to be supported by a receipt.

Your role

You are to assume the role of an accounting associate at BRACKENFIELD.

Your task

BRACKENFIELD keeps a petty cash float of $500 in a locked tin for small office purchases such as postage, stationery and refreshments for visitors. The float is supposed to be topped up each month against receipts. Over the past two months, it has come up $310 short, with no receipts to account for the difference.

Six employees hold keys to the tin. A log of withdrawals was kept until the spring, when the employee responsible for it left and nobody took it over. Everyone the office manager has spoken to says they only ever took money for legitimate purchases.

The office manager (judge) wants you to explain what happened and what changes. Distinguish among the types of business transactions the tin is used for, distinguish among the types of business documentation that should support each one, explain the role of ethics in financial-information management when nobody can be cleared or accused, explain how records should be preserved from here, and explain the routine security precautions a petty cash float should have.

Performance indicators

• Distinguish among types of business transactions.
• Distinguish among types of business documentation.
• Explain the role of ethics in financial-information management.
• Preserve automated accounting records.
• Explain routine security precautions.

The judge will ask

1. 1.How do you investigate when six people had access?
2. 2.What does the new petty cash procedure actually say?

The setting

A customer of STANFORD & REED is on 30-day terms and has averaged 71 days for a year. They are the company's third-largest account, they have never actually defaulted, and the company finances the gap every single time.

Your role

You are to assume the role of an accounting associate at STANFORD & REED.

Your task

STANFORD & REED supplies building materials to contractors on 30-day credit terms. One of its largest customers, a regional construction firm that buys about $60,000 of materials each month, has taken an average of 71 days to pay every invoice over the past year.

The customer has never missed a payment entirely and is pleasant to deal with. Meanwhile, STANFORD & REED pays its own suppliers within 30 days, and it has been using its bank overdraft to cover the gap. The credit manager wants to know what the late payments are really costing.

The credit manager (judge) wants you to work out what this account is costing and what should change. Describe the techniques used to analyze customer financial information, demonstrate the financial analysis applications that put a figure on the extra 41 days, explain the purposes and importance of the credit the company is effectively extending, explain the nature and scope of the financial-information management function, and explain how you would test the payment data for a definitive relationship.

Performance indicators

• Describe techniques used to analyze customer financial information.
• Demonstrate financial analysis applications.
• Explain the purposes and importance of credit.
• Explain the nature and scope of the financial-information management function.
• Test data for definitive relationships.

The judge will ask

1. 1.What are the extra 41 days actually costing?
2. 2.What would you change about their terms, and how would you say it?