On a recent trip to Brazil, Carlo degas, sales manager of cyber systems, took his along for a vacation and included her airfare and meals on his expense report, which he submitted for reimbursement. Chelsea Brindley, vice president of sales and Degas boss thought his total travel and entertainment expenses seemed excessive. However, Brindley approved the reinmbursement becasue she owed Degas a favour. Brindley, well aware that the company president routinely reviewed all expenses record in the cash payments journal, had the accountant record the expenses of Degas wife in the general journal as follows:

Question

On a recent trip to Brazil, Carlo degas, sales manager of cyber systems, took his along for a vacation and included her airfare and meals on his expense report, which he submitted for reimbursement. Chelsea Brindley, vice president of sales and Degas boss thought his total travel and entertainment expenses seemed excessive. However, Brindley approved the reinmbursement becasue she owed Degas a favour. Brindley, well aware that the company president routinely reviewed all expenses record in the cash payments journal, had the accountant record the expenses of Degas wife in the general journal as follows:

Sales Promotion Expense 7500
Cash 7500

Questions
1) Does recording transaction in the general journal rather that in the cash payments journal affect the amounts of cash and total expenses reported in the financial statements?

2) Why did Ms. Brindley want this transaction recorded in gerneral journal?

3) What is the ethical issue in this situation? What role does accounting play in the ethical issue?

Answer 1

1) Recording the transaction in the general journal instead of the cash payments journal does indeed affect the amounts of cash and total expenses reported in the financial statements. The cash payments journal is specifically used to record all cash payments made by a company, including expenses. By recording the transaction in the general journal, it may not be clear that this particular expense is related to cash payments, thus potentially distorting the company's cash position. Additionally, the general journal is typically used for non-routine or adjusting entries, so including this transaction there may not accurately reflect the nature of the expense.

2) Ms. Brindley likely wanted this transaction recorded in the general journal because it provides an opportunity to conceal the true nature of the expense. By recording it in the general journal, she could avoid drawing immediate attention to it when the company president reviewed the cash payments journal, which is where such expenses should normally be recorded. This allowed her to manipulate the records and potentially deceive the president without being detected.

3) The ethical issue in this situation is the misrepresentation of expenses and the abuse of authority. Carlo Degas included his wife's airfare and meals on his expense report, which is against normal business practices. Furthermore, Chelsea Brindley, as the vice president of sales, abused her power by approving the reimbursement despite the excessive nature of the expenses. The accounting department also played a role in the unethical behavior by recording the expenses in the general journal instead of the appropriate cash payments journal. This manipulated the financial records and concealed the true nature of the expenses, which is misleading and dishonest. Overall, there is a violation of ethical standards in reporting and accounting integrity.