On the last day of the fiscal year, a co-worker asks you to cut a check for $2,000 as a miscellaneous expense for supplies in order to complete a project for a VIP customer today. You notice the invoice looks a little different from other invoices that are usually processed. You know that by preparing the closing entries tomorrow, the miscellaneous expense will be set to zero for the beginning of the year. Should you write this check today and record the expense or write the check tomorrow? How would the company be affected if the check is written and the invoice ends up being erroneous?

was cut today and the expense was not recorded, which means that the net income of the current fiscal year will be increased by the amount of $2,000 while the net income of the next year will be reduced by the amount of $2,000 and this tend to happens due to some error.

Step-by-step explanation:

A. Based on accounting principle every debit entry must have a corresponding credit entry which means that in a situation where a check is been cut today for miscellaneous expense and for supplies the Miscellaneous expense account should be debited while the bank account should as well be credited based on the double entry principle because if not so the current year net income will wrongly shows and be higher with the amount of $2,000.

B. In a situation where the check was cut today and expense was recorded the following day or tomorrow it means that the current year financial statement net income will be increased by the amount of $2,000 while the amount shown in the balance sheet will decreased by the amount of $2,000.

Therefore I can issue a check today and as well record the expense the same day in which the check was issued.

codiepienagoya codiepienagoya · Answer 2 · 2021-11-22T21:00:06+01:00

Following are the solution to the given question:

When an invoice appears to just be distinct from those other bills which are typically handled, this should be filtered once the accountant receives the necessary verification regarding its accuracy/validity.
This expense must be noted as well as the check must be written only after sufficient proof of its legitimacy/accuracy has indeed been acquired. This is possible to do it now and tomorrow, but after ensuring that the bill is right. If the accountant has been unable to gather relevant data or evidence through that he or she is uncertain about the accuracy of the invoice as of today, the expense must be recorded as well as the check is written today only after being certain the invoice is correct.
Whereas if cost is reported today as well as the check was made, this will increase the overall cost for the current year now and reduce the operating earnings again for the current quarter. Whether it is later discovered that this invoice was incorrect, a reverse of accounting point of view for this invoice must be posted, reducing the expense for the following year and raising the net income for the next month.
When an expense is recorded in the current year and subsequently reversed in the following year (due to an incorrect invoice), the income for the current year will be understated, while the income for the following year would be overstated by the amount of the cost.
Furthermore, so because the cheque was written yesterday in the current year, the cash/bank balance will be recorded as lowered by the amount of this check for the current year. Whenever the check is reversed the following year, its cash/bank balance would be tallied with cash/bank balance as recorded by the bank.

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