ACCOUNTING ANALYSIS - The following case analysis is based...

The following case analysis is based on the operating manager Richard Brown and me the
accountant of the Cooper Consultant Corporation. Cooper Consulting Corporation offers Richard
a bonus if the Fort Lauderdale region office has net income in excess of the budgeted amount.
During the current year, Cooper does a consulting service for a client, at a price of $300,000.
Cooper finished the project as of December which is the month of finishing operations. Without
recording the $300,000 of service, Cooper has made high profits for Richard to receive his
bonus, but Richard wants a head start for Cooper’s profits next year, in an unethical way.
The primary goal for Richard is to increase his bonus and me as the accountant is to
ensure that the revenues are recognized, or recorded on the company’s books in the correct
period. In the case, the timing of the Corporation’s recognition of revenue on its financial
statements depends on whether the company uses the accrual or cash basis of accounting to
maintain its books.
Since Cooper’s revenues are up to par for the present year before factoring the $300,000
project in the performance books for the current year, Richard will propose to me to record the
project next year using the cash basis method for the cash payment from the client that is not
due until the upcoming year versus using the original method which is the accrual basis
accounting method when the service was done.
As the account, I’m supposed to report revenues and expenses when services are
provided, regardless of when cash is received or paid. Richard should allow me to report all of
Cooper’s revenues, expenses, and net income in the period the consulting occurred. In the case
there were no expenses, so the revenue would only be recorded. Using the overall accounting

equation, I would report the Assets: Accounts Receivable (+300,000), = Liabilities: $ 0 and
Stockholder’s Equity: Service Revenue (+300,000).
Month 1 December
(No cash received, but the service is
provided)
Month 2
(Cash received, but no service is provided)
Revenue $ 300,000
Net Income $300,000
Revenue $ 0
Net Income $ 0
Using cash basis, the alternative method Richard proposes will only report the revenue
when the cash is received from the client. If Richard switches Coopers’ payment terms to cash
only, then the revenue also will create a corresponding amount of cash on the balance sheet. If
Coopers’ payment terms allows credit to their clients, then the revenue creates a corresponding
amount of accounts receivable on the balance sheet. This increase in assets also creates an
offsetting in the Stockholder’s equity part of the balance sheet, where retained earnings will