Your client is preparing financial statements to show the bank. You know that he has incurred a computer repair expense during the month, but you see no such expense on the books. When you question the client, he tells you that he has not received the official bill, although he knows the expense was $1,250. Your client is on the accrual basis of accounting. He does not want the computer repair expense on the books as of the end of the month because he wants his profits to look good for the bank. Is your client behaving ethically by suggesting that the computer repair expense not be booked until the official bill is presented? Are you behaving ethically if you go along with the client's request? What principle is involved here?

I think the situation is unethical and they would be breaking some company laws, i could not thnik of the correct words, please help ... thanks

You are correct in recognizing that the client's behavior is unethical. By suggesting that the computer repair expense not be booked until the official bill is presented, the client is attempting to manipulate the financial statements to make the profits appear higher than they actually are. This is a violation of the principle of honesty and integrity in accounting.

As an accounting professional, it is important to uphold ethical standards and act in the best interest of the company and its stakeholders. Going along with the client's request would compromise your professional integrity. Your role is to ensure that the financial statements accurately reflect the company's financial position and performance.

The principle that is involved here is the principle of accrual accounting. Under the accrual basis of accounting, expenses should be recognized and recorded in the period in which they are incurred, regardless of when the cash payment is made. In this case, even though the official bill has not been received, the client incurred the computer repair expense during the month and it should be recorded accordingly.

It would be appropriate to explain to the client the importance of accurately reflecting expenses, and the implications of misrepresenting financial information to the bank or any other stakeholders. You can advise the client to record an estimated expense and make any necessary adjustments once the official bill is received. By doing so, you would be aligning with ethical principles and ensuring the integrity of the financial statements.