Question

References 12 ν Α' Review Α' View Γ Help Ο Open in Desktop App ν Αν Α. ... Ev Tell me what you want to do Editing v ... Av O Fir Β 1) What are adjusting entries? 2) Which account is never present in an adjusting entry? 3) What is the effect of not posting the following entry on the Financial Statements, i.e. explain the impact on a) Income Statement, b) Statement of RE, c)Balance Sheet Supplies Expense $500 Supplies $500 4. Some of the largest business frauds ever perpetrated have involved the misstatement of inventory. Two classics were at Leslie Fay and McKesson Corporation. Instructions There is considerable information regarding inventory frauds available on the Internet. Search for information about one of the two cases mentioned above, or inventory fraud at any other company, and prepare a short explanation of the nature of the inventory fraud.

Answer 1

Ans.:

1. What are Adjusting Entries: Those Journal entries which are passed to bring accrual basis of accounting in books are called Adjusting Entries like Prepaid Rent, Outstanding Telephone bills etc.

2. Which account is never present in adjusting entry: Cash Account is never present in adjusting entry.

3. Effect of Non Posting of following Entry:

Supplies Expense $500

Supplies $500

a) Income Statement: Profit will be over stated by $500 in Income statement.

b) Statement of RE: Retained Earning will be over stated by $500.

c). Balance Sheet: Retained Earning over stated by $500 and Current Liabilities under stated by $500.

4. Inventory Fraud: There are two types of inventory fraud: (i) Theft of physical inventory, & (ii). Misstatement of inventory records on a financial statements.

(i) Theft of Physical inventory: Any firm or small company can be victim of theft of physical inventory by its employees but

(ii) Misstatement of inventories in financial statement can be prepared by the business or management itself. This could be because of engagement of business in fraudulent activities to trick tax agencies, financial institutions, banks or shareholders.