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You are the auditor of Browning, Inc., a manufacturer of plastic products. In reviewing the balance sheet of the company, you notice several receivables from the officers of the company. You report your findings to the president of the company and inform him that these receivables will be considered related party transactions for purposes of financial accounting and reporting. The president seems somewhat annoyed by your comments and asks you to explain what you mean by "related party" transactions and how the financial statements will be affected by these transactions. Prepare a brief response to the president's question.

The response should be at least 350 words.

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Nestor Rutherford
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15 Aug 2019

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Take a look at Case 8.1 and answer the following questions:

Case 8.1 Audit Adjustments:

You are a CPA on the audit staff of a multinational publicaccounting firm. You are the senior auditor on an annual audit of amanufacturing company that is a small subsidiary of a largercompany that is a significant client of your firm. In addition to asizable fee for the annual audit, the parent company pays your firmadditional fees each year for tax consultation and returnpreparation as well as other management consulting services. Withthis particular audit, as with many parent-subsidiaryrelationships, you are aware that there is a tremendous amount ofpressure on the subsidiary company’s management to reach certainprojected sales goals for the year. Because of this, the climate atthe subsidiary is tense as you begin your annual examination of theyear-end financial statements. During the course of the audit, youperform a sales cutoff test to ensure that all sales transactionsat year-end were recorded in the proper period. Since title to thecompany’s products passes when they are shipped to customers,shipments are required in order for a sale to be properly recorded.Accordingly, a standard audit procedure is to cross-reference salesrecorded prior to year-end to related shipping records to salesjournals. The sales cutoff test revealed that numerous shipmentsmade after the company’s year-end were recorded as sales prior toyear-end, which resulted in significantly higher revenue during theyear you are auditing. You are aware that as an independentauditor, you have a responsibility to your clients and to those whomight make decisions based on the company’s financial statement,such as investors and lenders. When you inform the subsidiary’scontroller of the results of your sales cutoff test and that anadjustment to annual revenues and profits would likely bewarranted, he takes the matter to the president of the subsidiary.During a follow-up meeting with the controller and president, thepresident attempts to get you to reconsider your proposedadjustment with the following arguments.

1) The amount of the adjustment you were proposing was notmaterial to the parent company’s financial statement.

2) All of the subsidiary’s competitors did the same thing inrecording shipments just after year-end as sales in the previousyear.

3) It really didn’t matter in the long run if sales were movedfrom the current year to the next year, since sales and profits forthe next year would be greater> At the end of the meeting, thepresident drops a not-so-subtle reminder that his company is asubstantial client of the firm. You call the partner from your firmwho is in charge of the audit for advice, and he tells you tohandle the situation on your own. After considering all factors,you continue to feel that an adjustment to the company’s financialstatements is warranted, but after a meeting with the clientattended by your senior partner on the audit (and not attended byyou) you are instructed by the senior partner not to make theadjustment.

How should you react?

Question answer should address these issues – This calls for ananalysis that appreciates the complexity of the auditor’s role.

The well written answer will address the following points: Theauditor and the auditor’s firm has to recognize that its ownfinancial survival may be dependent in part on continuedsatisfactory work in the eyes of the client/subsidiary as well asthat of the subsidiary’s parent corporation.

The auditor will have to reconcile professional and satisfactoryservice with the responsibility of the auditor to report accuratelyand to attest to proper accounting standards within the reportingsystem of the subsidiary.

The auditor will be subject to professional discipline and civilliability if the auditor fails to honor professional standards ofconduct and of fiduciary duties.

As a practical matter, and as an interpretive artist, theauditor need not either comply with the senior partner or quit…

Information can be honestly presented in a fashion that iscandid, such as through footnoting, while still presenting apicture that might me closer to the expectations of the client. Ofcourse, there is a large potential for disingenuousness in such anapproach.

Instructions: Analyze the situation below using the 6-stepapproach to resolving ethical dilemmas on the next page. You shoulddiscuss each step of the approach in a separate paragraph.Therefore your finished paper should be 6 paragraphs long andapproximately 2-3 pages typed in 12-point font and double spaced.Prepare the paper in Word format and submit in the dropbox set upin Western Online by the due date listed there. This assignment isworth 60 pts in total with 50% of points for content and adherenceto the 6-step approach and 50% on grammatical style andpresentation (writing skills).

Jon Williams, CPA, is in the middle of the real-life soap opera,“Taxing Days of Our Lives”

The Cast of Characters:

Oneway Corporation is Jon’s audit and tax client. The threedirectors are the officers and the only three stockholders, eachowning exactly one-third of the shares

President Jack founded the company and is now nearingretirement. As an individual, he is also Jon’s tax client.

Vice President Jill manages the day-to-day operations. She hasbeen instrumental in increasing the business and its profits.Jill’s individual tax work is done by CPA Phil.

Treasurer Bill has been a long-term, loyal employee and has beenresponsible for many innovative financial transactions and reportsof great benefit to the business. He is Jon’s close personal friendand an individual tax client. (Side Note: Another CPA in Jon’saudit firm is the partner assigned to the audit engagement ofOneway Corporation to maintain auditor independence for thisengagement.)

The Request

President Jack discussed with CPA Jon the tax consequences tohim as an individual of selling his one-third interest in OnewayCorporation to Vice President Jill. Later, meeting with Bill todiscuss his individual tax problems, Jon learns that Bill fearsthat Jack and Jill will make a deal, put him in a minorityposition, and force him out of the company. Bill says, “Jon, wehave been friends a long time. Please keep me informed about Jack’splans, even rumors. My interest in Oneway Corporation represents mylife savings and my resources for my kid’s college. Remember,you’re little Otto’s godfather.”

Thinking back, Jon realized that Vice President Jill has alwaysbeen rather hostile. Chances are that Phil would get the Onewayengagement if Jill acquires Jack’s shares and controls thecorporation. Nevertheless, Bill will probably suffer a great dealif he cannot learn about Jack’s plans, and Jon’s unwillingness tokeep him informed will probably ruin their close friendship. Jonponders the problem. “Oneway Corporation is my client, but acorporation is only a “legal entity”. The stockholders personifythe real entity, so they are collectively my clients, and I cantransmit information among them as though they were one person.Right? On the other hand, Jack and Bill engage me for individualtax work, and information about one’s personal affairs is really nobusiness of the other. “What to do? What to do?”

Ethical Model 1. Obtain the relevant facts.

2. Identify the ethical issues from the facts.

3. Determine who is affected by the outcome of the dilemma andhow each person or group is affected.

4. Identify the alternatives available to the person who mustresolve the dilemma.

5. Identify the likely consequence of each alternative.

6. Decide the appropriate action.

This is for AC1420: Week 2 trial balance (ITT Tech) not sureexactly where to start if someone can help

Based on the lesson presentation and readings for this week,prepare a one- to two-page document listing a minimum of fiveadjusting entries to a trial balance, explaining the purpose ofeach of these entries.
Make sure you include both the debit and credit entry for eachadjusting entry. Specify in your response whether these entrieswill increase or decrease the profits in the current period.

Accounting Information Systems
Throughout the chapters of this book, you have been keeping trackof Team Shirts’ transactions using an accounting equation worksheet. We can do that in a simple world with a small number oftransactions. In the real world, that wouldn’t work very well. Acompany in the real world needs a better system to keep track ofthe large number of transactions represented in the four basicfinancial statements. A company may have an accounting system thatgathers only accounting information—just recording the informationthat applies to the financial statements—and other informationsystems gathering information for marketing, production, and otherparts of the company. Alternatively, a company may have a single,integrated information system in which all company information isrecorded—data about suppliers, employees, operations; and theaccounting information is simply a small part.
The firm’s accounting information is kept in the firm’s generalledger. The general ledger is the collection of a company’saccounts where the amounts from the firm’s transactions areorganized and stored. You can think of it as a big book with a pagefor every asset, liability, equity, revenue, and expense account.Later in this appendix, you will learn how transactions getrecorded in a company’s general ledger. For years, the generalledger system was maintained by the accounting department as aseparate information system; and the other functional areas of thebusiness—marketing, production, sales, etc.—each had its own systemfor keeping track of the information it needed. Since thedevelopment of computers and software programs that can managelarge amounts of information, more and more companies are using asingle, integrated information system. Thus, instead of keepingtheir data separately, accountants may get rprise-wide resourceplanning system (ERP).
No matter how it is related to the rest of a firm’s informationsystem, the accounting system is still called the general ledgersystem. The same financial statements are produced with both thegeneral ledger and the integrated types of information systems. Inthis appendix, we will use the general ledger system, which wasdesigned as a manual system, to demonstrate how transactions arerecorded, classified, and summarized for the financialstatements.
The General Ledger Accounting System
Keeping track of financial information with a traditionalrecord-keeping system is often called bookkeeping. As transactionsoccur, they are recorded chronologically by a bookkeeper in a bookcalled a journal. When we prepare an accounting equation work sheetshowing the effect of each transaction on the accounting equation,we are doing something similar to recording a transac- tion in ajournal. The resources exchanged are shown with their dollaramounts. The journal con- tains a record of each transaction as itoccurs. An example is shown in Exhibit B.1. In the next section,you’ll learn how the “debits” and “credits” columns are used. Fornow, just notice that all of the accounts affected by thetransaction are used in a journal entry. Most companies use morethan one journal; each department may have its own journal. Commonjournals are the (1) sales journal, (2) cash receipts journal, and(3) cash disbursements journal. For simplicity, we’ll use a single,general journal for all our transactions.

ge 4: General Journal
Ref.
J-1
J-2
Date Journal entry Debits Credits
June 1 Cash . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 65,000 Sales . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 65,000
To record the collection of cash for sales. June 4 Equipment . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 20,600
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 20,600 To record the purchase of equipment for cash.
The journal entries are recorded chronologically. Then, theindividual items are “regrouped” by account as they are posted tothe general ledger. Trace the cash amounts in the journal entriesto the general ledger cash account shown in Exhibit B.2 on page566. The amounts for sales and equipment will be posted to theirown general ledger accounts

Because a company may have hundreds or even thousands oftransactions during an account- ing period, it would be difficult,probably impossible, to try to gather and use the information froma chronological record such as the journal. To be useful, theinformation needs to be reorganized, grouping together transactionsthat involve the same account. For example, when all the transac-tions that involve cash are grouped together, then the company’scash balance can be easily deter- mined. As you can see from thatexample, it is useful for similar transactions to be groupedtogether. The transactions from the journal or journals aretransferred to another book called the general ledger through aprocess called posting the transactions to the general ledger.Posting is done periodically; it could be daily, weekly, ormonthly, depending on the size of the company.
The general ledger is the primary record of the financialinformation of the business. It is organized by accounts. As youread earlier in this book, an account is the basic classificationunit of accounting information. You can think of each financialstatement item as an account, and each account as a page in thegeneral ledger. On the page for a particular account, we record allthe additions to, and deductions from, that account.
For example, one account in the general ledger is cash. On the cashpage in the general ledger, we find every cash collection and everycash disbursement made by the company. If there are moredisbursements or collections than can fit on one page, they will berecorded on as many following pages as needed, all comprising thecash account. To make it easy to find the amount of cash on hand,the cash account has a running balance. That means a new balance iscalculated after every entry. Think about your own checkbook—that’sthe record you keep of each check you write (a subtraction); eachdeposit you make (an addition); and the resulting total remainingin your checking account (that’s your running balance). If you keepa running balance, it is much faster to find out how much cash youhave in your account. (Have you discovered what happens when youfail to keep your checkbook balance current?)
Accounts in the general ledger include cash, accounts receivable,inventory, prepaid insurance, equipment, accumulated depreciation,accounts payable, notes payable, contributed capital, and retainedearnings. (Notice, these are given in the order in which theyappear on the balance sheet.) How many accounts does a companyhave? Every company is different, and the number of accountsdepends on the detail the company wants in its financial records.For example, one company could have an account called utilitiesexpenses in which many different utility-related expenses could beaccumulated. Another company might prefer to have a separateaccount for each type of utility expense—a separate page in thegeneral ledger for electricity expense, gas expense, water expense,etc. The number of accounts is determined by the amount of detail acompany wants to be able to retrieve from its records. If a companyuses very little gas or water, it would be a waste of time andspace to keep a separate account for those expenses. A company thatuses water in its production process, on the other hand, woulddefinitely want to keep a separate account for waterpurchases.
Companies also have subsidiary ledgers. These are detailed recordsthat support the bal- ances in the general ledger. For example, theaccounts receivable subsidiary ledger will have details about thecredit customers—sales, receipts, and account balances for everycustomer. The total dollar amount of accounts receivable in theaccounts receivable subsidiary ledger will be the total in thegeneral ledger.
Most companies have a large number of accounts, and they combinethe similar ones for the financial statements. When we look at thefinancial statements, we can’t really tell how many individualaccounts a company has in its general ledger. Many smaller accountsmay be com- bined for financial statement presentation.
Anyone in the firm with access to the accounting records who wantsto know the balance in any account at any time can find it bylooking in the general ledger. A list of the balances in all theaccounts of a company is called a trial balance.
Before the financial statements can be prepared, adjustments to therecords must be made. We discussed those adjustments and how tomake them in Chapter 3. Adjustments are needed because of thenature of accrual accounting. On the financial statements, we needto include revenues that have been earned and expenses that havebeen incurred, even if we have not yet received the cash earned orpaid the cash for the expenses incurred during the accountingperiod. These adjustments are called accruals. The action has takenplace, but the dollars have not been exchanged.
We also need to be sure to include on the income statement for theperiod any revenue we’ve earned or expenses we’ve incurred forwhich the dollars were exchanged at a previous time. These arecalled deferrals. The dollars were already exchanged, and werecorded the receipt of the cash when we received the cash.However, we did not recognize any revenue or expense at that time.At the end of the accounting period, we have to recognize anyrevenue we have earned and any expenses that we’ve incurred.
No matter what kind of accounting system a company uses, theinformation produced by that system must be adjusted before thefinancial statements can be prepared. After the adjustments aremade, the financial statements are prepared. We have actually doneall this—recording the transac- tions, making the adjustments, andpreparing the financial statements—using the accounting equationwork sheet. The general ledger system is simply a more feasible wayto do it in an actual business.
Debits and Credits
To use the general ledger system and to understand the informationit makes available, we must learn a bit more accounting language.Don’t panic over the terms debit and credit. You will find themeasy to understand, but only if first you get rid of any notions ofwhat you already think debit and credit mean. In accounting, eachterm has a very specific meaning that should not be confused withits more general meaning.
In accounting, when we say debit, we mean the left side; when wesay credit, we mean the right side. (This should be easy toremember.) Left is the only thing that the word debit means andright is the only thing that the word credit means—unless we applythe terms to specific accounts.

A general ledger has been traditionally composed of amulticolumn page, similar to the one shown in Exhibit B.2. TheDebit column on the right shows the running balance in the cashaccount. You would almost never see a credit balance in thisaccount. The general ledger is often computerized in a similarformat.
In the balance columns, the column on the left is called the debit(DR) column, and the column on the right is called the credit (CR)column. As a shortcut to using formal preprinted two-column paper,accountants often draw a T-account to represent a page in thegeneral ledger. T-accounts shown in Exhibit B.3 are ourrepresentation of the general ledger shown in Exhibit B.2. OneT-account such as cash, shown next, represents a single page in thegeneral ledger. The left side of a T-account is the debit side, andthe right side of a T-account is the credit side.
Cash
Debit Credit
Numbers we put on the left side of the account are called debits,and putting a number in the left column is called debiting anaccount. Debit is a wonderful word that can be an adjective, anoun, or a verb. The same goes for the word credit. The right sideof the account is called the credit side, the numbers we put on theright side are called credits, and putting a number in the rightcolumn is called crediting an account.
In the fifteenth century, a monk named Fra Luca Paccioli wroteabout a system that uses debits and credits with the accountingequation. In his system, the accounting equation stays in balancewith each transaction and the monetary amounts of debits andcredits are equal for each transaction. Here’s how it works:
1. For the accounting equation, the balance in the accounts on theleft side of the equa- tion (assets ) will increase with debits;and the balance in the accounts on the right side of the equation(liabilities and shareholders’ equity ) will increase with credits.It follows that the balance in an asset account will decrease withcredits. Liability and equity account balances decrease withdebits. Putting that together,
• asset accounts are increased with debits anddecreased with credits. • liability and shareholders’equity accounts are increased with credits and decreased
with debits.
This means that when we want to add an amount to our cash balance,we put the number of that amount on the left (in the left column ofthe two columns in the general ledger account for cash)—so that’s adebit. When we disburse cash and want to subtract the amountdisbursed from the cash account, we put the number of that amounton the right side—so that’s a credit. The increase side of anaccount is called its “normal” balance. Cash has a normal debitbalance. Because we put the cash we receive on the debit side andthe cash we disburse on the credit side, it makes sense that ourcash account will normally have a debit balance. (It’s not normalto dis- burse more cash than you have—it’s pretty unusual.)
In accounting, we do not literally add and subtract from an accountbalance—we debit and credit an account to accomplish the samething. If we make an error, we do not erase the mistake and replaceit with the correct answer. Instead, we debit or credit the accountto cor- rect the error and make the account balance correct. Whenaccounting records are kept by hand, all entries are made in ink sothat no entries can be erased or changed. This has been traditionalin accounting to keep the records from being altered. Recordingevery increase to, and decrease from, an account balance gives acomplete record of every change made to the account.
2. Because shareholders’ equity is increased with credits, allaccounts that increase share- holders’ equity will increase withcredits. Revenue accounts increase with credits and decrease withdebits. When we make a sale, we credit the sales account.
3. Because shareholders’ equity is decreased with debits, allaccounts that decrease share- holders’ equity work in the oppositeway as revenue accounts work. For example, expense accounts—where alist of our expenses is kept—increase with debits. As we incurexpenses, we put the amounts on the left side of expenseaccounts.

The Accounting Cycle
The process that starts with recording individual transactions,produces the four basic financial statements, and gets our generalledger ready for the next accounting period is called theaccounting cycle. Some of the steps in the accounting cycle won’tmake any sense to you yet, but this appendix examines each indetail. By the end of this appendix, you should be able to explainand perform each step. The steps in the accounting cyclefollow:
1. Record transactions in the journal, the chronological record ofall transactions, from source documents such as invoices. These arecalled journal entries.
2. Post the journal entries to the general ledger. 3. At the end ofthe accounting period, prepare an unadjusted trial balance. 4.Prepare adjusting journal entries and post them to the generalledger. 5. Prepare an adjusted trial balance. 6. Prepare thefinancial statements. 7. Close the temporary accounts. 8. Prepare apostclosing trial balance.
Let’s look at each of these steps in detail.
Step 1: Recording Journal Entries
In the normal course of business, many transactions must berecorded in the accounting system. Let’s look at how thetransactions for a company’s first year of business would berecorded in a jour- nal. The transactions for the first year ofClint’s Consulting Company, Inc., are shown in Exhibit B.4.

Step 1: Recording Journal Entries
In the normal course of business, many transactions must berecorded in the accounting system. Let’s look at how thetransactions for a company’s first year of business would berecorded in a jour- nal. The transactions for the first year ofClint’s Consulting Company, Inc., are shown in Exhibit B.4.
The first transaction in Clint’s first year of business is his owncontribution of

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