Suppose, at a party, your friend Queenie mentioned to you, in confidence, that her business was in the middle of a big scandal. It seems that the business needed a loan in order to enter into a top-secret marketing effort. In preparing the financial statements necessary for securing the loan, the business' bookkeeper noticed that cash flows from operations had been declining over the past five years, although total cash flows had been increasing. Afraid that the bank would turn down the business' request for a loan if it saw the business' decreasing trend in cash flows from operations, the bookkeeper decided to reclassify cash receipts from the sale of equipment as collections from customers.

Required:

a What do you think he hoped to accomplish by making the reclassification?

b Who do you think might be affected by this decision, and how might they be affected?

c If you were the business' owner, how would you have reacted to the bookkeeper's 'help'?