Jennifer Baxter was preparing the adjusting journal entries for Jennifer’s Java, a business that uses the accrual basis of accounting, to prepare the adjusted trial balance and financial statements. She knew that $750 of salaries related to the current accounting period had accrued but would not be paid until the next period. Jennifer thought that simply not including the adjustment for these salaries would mean that salary expense would be lower, and reported net income would be higher than it would have been if she had made the adjustment. Further, she knew that the Salary Payable account would be zero, so the liabilities reported on the balance sheet would be less, and her business would look even better. Besides, she reasoned that these salaries would be reported eventually, so it was merely a matter of showing them in one period instead of another. Dismissing the reporting as just a timing issue, she ignored the adjustment for the additional salary expense.
Is Jennifer acting unethically by failing to record the adjustment for accrued salaries? Does it matter that, shortly into the new accounting period, the salaries will ultimately be paid? Is it really simply a matter of timing? What are the potential problems of failing to include all the adjusting journal entries?

  • CreatedJuly 08, 2015
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