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

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The following case analysis is based on the operating manager Richard Brown and me theaccountant of the Cooper Consultant Corporation. Cooper Consulting Corporation offers Richarda 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. Withoutrecording the $300,000 of service, Cooper has made high profits for Richard to receive hisbonus, 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 toensure that the revenues are recognized, or recorded on the company’s books in the correctperiod. In the case, the timing of the Corporation’s recognition of revenue on its financialstatements depends on whether the company uses the accrual or cash basis of accounting tomaintain its books.Since Cooper’s revenues are up to par for the present year before factoring the $300,000project in the performance books for the current year, Richard will propose to me to record theproject next year using the cash basis method for the cash payment from the client that is notdue until the upcoming year versus using the original method which is the accrual basisaccounting method when the service was done.As the account, I’m supposed to report revenues and expenses when services areprovided, regardless of when cash is received or paid. Richard should allow me to report all ofCooper’s revenues, expenses, and net income in the period the consulting occurred. In the casethere 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 andStockholder’s Equity: Service Revenue (+300,000).Month 1 December(No cash received, but the service isprovided)Month 2(Cash received, but no service is provided)Revenue$ 300,000Net Income$300,000Revenue$ 0Net Income$ 0Using cash basis, the alternative method Richard proposes will only report the revenuewhen the cash is received from the client. If Richard switches Coopers’ payment terms to cashonly, then the revenue also will create a corresponding amount of cash on the balance sheet. IfCoopers’ payment terms allows credit to their clients, then the revenue creates a correspondingamount of accounts receivable on the balance sheet. This increase in assets also creates anoffsetting in the Stockholder’s equity part of the balance sheet, where retained earnings will

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Term
Fall
Professor
N/A
Tags
Accounting, Balance Sheet, Revenue, Generally Accepted Accounting Principles

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