Question

On the last day of the fiscal year, a co-worker asks you to cut a check for $2,000 as a miscellaneous expense for supplies in order to complete a project for a VIP customer today. You notice the invoice looks a little different from other invoices that are usually processed. You know that by preparing the closing entries tomorrow, the miscellaneous expense will be set to zero for the beginning of the year.

Should you write this check today and record the expense or write the check tomorrow? How would the company be affected if the check is written and the invoice ends up being erroneous?

Answer 1

Explain whether the check should be write today or tomorrow: On the last day of the accounting year an employee cut the check of $2.000 as miscellaneous expense for supplies in-order to close a project. It is illegal. According the principles, rule and regulation of accounting, the transition should have debit and credit effect. Instead of supplies, the cut of check for miscellaneous expenses will result in debit of miscellaneous expense and credit of bank account. It will overstate the amount of profit. If the check is cut of today it will increase the net income of the current accounting period and decrease the net income of the next accounting year. To avoid this error, the check should be cut today and the expense should be recorded tomorrow. Thus, it will result in increase in the current year income and reduce the balance sheet by $2,000. Conclusion: Therefore, it is advisable to cut the check today and record the expenses.