Question

Describe the purpose of a Trial Balance and the steps of how to prepare a Trial Balance. Part 2: Meredith Ward is the assistant chief accountant at Frazier Company, a manufacturer of computer chips and cellular phones. The company presently has total sales of $20 million. It is the end of the first quarter. Meredith is hurriedly trying to prepare a trial balance so that quarterly financial statements can be prepared and released to management and the regulatory agencies. The total credits on the trial balance exceed the debits by $1,000. In order to meet the 4 p.m. deadline, Meredith decides to force the debits and credits into balance by adding the amount of the difference to the Equipment account. She chooses Equipment because it is one of the larger account balances; percentage-wise, it will be the least misstated. Meredith “plugs” the difference! She believes that the difference will not affect anyone's decisions. She wishes that she had another few days to find the error but realizes that the financial statements are already late. Answer the following questions: Who are the stakeholders in this situation? What are the ethical issues involved in this case? What are Meridith's alternatives?

Answer 1

Facts of the case:

Meredith Ward is the assistant chief accountant at Frazier Company. At the end of the first quarter the accountant is very busy in trying to prepare a trial balance so that quarterly financial statements can be prepared and released to management and the regulatory agencies. There was a diagreement in trail balance where the total credits on the trial balance exceed the debits by $1,000. The amount of the difference was adjusted in the Equipment account. She chooses Equipment because it is one of the larger account balances.

1. The Stakeholders in this situation were Management and Various regulatory agencies. i.e., persons who has interest in the company.

2. Financial Reporting is a straight forward task which comes with a variety of ethical issues. Breaches in ethics leads to major scams or financial scandals for many companies and finally leading to loss of investors. In the present case the accountant has to rectify the misstatements. The amount of $ 1,000 was not so important. However such adjustment in trail balance is a non ehical issue. In the present case the equipment was overvalued by an amount $ 1,000 in order to compensate the difference in trail balance.

3. Meridith's alternatives

The main objective of preparing trail balance is to ensure that all the debit and credit aspects of financial transactions were correctly recorded, Checking the arthematical accuracy in the entity books of accounts. The accountant has to verify the books of accounts in order to find out the reasons for such difference. The present case was due to omission of debit aspect in a transaction. The accountant has to cross verify all the journal entries with particulars posted in respective ledgers.