Accounting recording transactions

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Professor

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Institution

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Scenario 1

Luca Pacioli book keeping principles refers to the use of double entry method to determine the difference in assets and liabilities in business transaction though determining aspects to debit and those to credit in a journal (Andruss, 1937). Through this partition in the independent occurrence of assets and liabilities, the business has the capability to establish the existence of expenses and profit acquired from deduction of expense. According to Luca Pacioli, every aspect of business transactions requires an opposite counter in recording the transaction where a double entry is culminated such that the entry of information regarding a transaction utilizes an equation that maintains balance in record keeping. In the above scenario, the manager who is obviously meticulous about his severance uses a conniving scheme to ensure that he maintains his bonus after end of the year business closure in accounts and determination of profit margin as per the financial year (Silverstone, 2012). Since the manager is in charge of deciding how the company manages records accounting transactions, he suggests that expenses of the year in question be transferred to the next year to ensure that they do not affect the business profit. Luca does not agree with the logic of this scheme in whatever context of the matter. He states, “Nobody should go to sleep until the debits equalled the credits” (Brown & Johnston, 1963). Lucas uses the concept of debit and credit as premise for maintenance of a balance sheet objective to “balance” when creating journal entries and to avoid misrepresentation of data on the ledger. Considering the above case, the accountant lack of recording the transaction but providing funds for the expense of the maintenance cost violates Lucas principle of book keeping. Considering the facts of the case on one side, the accountant will debit the maintenance account but will not credit the amount from the funding account therefore resulting in a false depiction of the trial balance amount of profit made in the financial year.

Scenario 2

The manager in yet another scheme decides to use the expense of a machine as insurance for the coming years that have a high expectancy of low profits. The analogy of the manager is that the cost of the machine in the particular financial year will be absorbed and used as compensation for the forthcoming years expected to yield low profits. Since the company uses a policy that deducts a 10% amount of the cost of the equipment accounted as depreciation and recorded as an expense throughout the useful life of the equipment, the cost of equipment is distributed in accordance to the service that the equipment provides. Luca Pacioli agrees with this scheme since it poses no harm to the bookkeeping recording of transactions. Irrespective of the motif used to arrive to this strategy, the concept preferred by the manager possess no harm to the business since complete compensation of the cost of the equipment deducted from the records consequently results complete accounting of the cost of the equipment instead of using a scheme that distributes the cost over a period of ten years. Luca only requires that there be a record of the asset and the cost of the asset (Brown & Johnston, 1963). By accounting for the cost in the particular year, a journal entry of the equipment is debited while a similar entry of credit to the funding account hence balance is maintained.

Reference

Andruss, H. A. (1937). Ways to teach bookkeeping and accounting. Cincinnati: South-western Pub. Co.

Silverstone, H. (2012). Forensic accounting and fraud investigation for non-experts. Hoboken, N.J: Wiley.

Brown, R. G., & Johnston, K. S. (1963). Paciolo on accounting. New York: Garland Publishing.