Case analysis Essay Example | Topics and Well Written Essays - 750 words - 4

Case analysis - Essay Example As there will be no entry for the wage expense in the current period, so there will also be no recording of wage payable liability in the current period. The whole transaction will be unrecorded and no accounting entry in the current year will be made. However, in next year when wage is paid, following entry will be recorded If the original way is adopted, then there will be lesser net income in current period and more liabilities as wage expense will reduce the net income of the current period and wage payable will increase the liability for the current period. However if alternative way is adopted then income in current period will be overstated as wage expense is not being recorded in current period to which they belong. Similarly liabilities will be understated due to no recording of wage payable liability. If in next period origination reverts back to original method, then expense in the next period will be overstated due to recording of previous year expenses in current year. This will result in lower net income in next year. Dilemma for Tom, the manager, is that he has increased amount of debt to pay due to a sick family member and part of his earning, bonus, depends upon the net income during the year. He will only be paid bonus if the net income of the year exceeds the budgeted income for the year. However in the current year, the net income is lagging behind the budgeted income. This means that he will not be paid bonus this year. If he receives no bonus in current year, then his financial position will be very week as he has incurred large amount of debt in current year. So there is clear motive for him to window dress expenses and income in current year so that net income exceeds the budgeted income so that he is paid bonus in the current year. Accountant has been working under the current manager for five years and is very appreciative