Revision of the Financial Statements

Written by William on .

Statements

 

Revision of the Financial Statements

Under the cash basis, revenue is recognized and recorded in the income statement when it is received while expenses are acknowledged and recorded when they are paid (Blake, 2013). The revision of the financial statement was correct because the accrual basis system gives the actual picture of the business while the cash basis does not since it fails to record all items. Accrual basis recognizes all earnings and occurrences while cash basis recognizes only cash movements (Stittle & Wearing, 2008)

Inclusion of $20,000

The inclusion of $ 20,000 in the accounts receivables was not correct because no transaction had taken place by that time and the amount was just a request. The recording would only be necessary after the delivery since Cliff would have the right to claim the proceeds.

Ethical and Professional Conduct

The ethical and professional conduct in question by Cliff Hall in applying for the loan was integrity. The aspect demands honesty, openness and being straightforward when dealing with a client or preparing accounts. Professionals should try to avoid deception and manipulation of financial information as much as possible when carrying out their accounting duties. Cliff manipulated the receivables for his personal gains, which is wrong (Blake & Gowthorpe, Ethical Issues in Accounting, 2005)

Conclusion

Cliff Hall was right in using the accrual basis rather than cash since it reflects the actual revenue earned and expenses paid. However, he was wrong to include the amount that was not earned. Thus, the inclusion of that figure raised questions about his ethical and professional conduct in accordance to being honest, transparent and trustworthy.