Ethics in Accounting on Linbarger Company

What is the accounting problem that the Linbarger Company faces?

The accounting problem in Linbarger Company is cash management. This is because the insurance company requires Linbarger to maintain a $200,000 by closing month, which was not the case on June 30 where the closing balance was $80,000. The cash management issue is due to mismanagement between the payments and receipts in the company. The conditions with the insurance company place Linbarger at risk of being closed if they lack alternative short-term cash funding. 

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What are the ethical considerations in this case? Provide a rationale for why these are ethical considerations.

The ethical assumption in the case will be based on the periodical assumption concept of accounting. According to Lewis (2001), the periodicity concept in accounting requires every accounting period to be linked with an economic activity, which is measurable, accountable, and reportable. Based on this, it is unethical, deceitful, and fraudulent to overstate the cash receipts.  The periodical assumption concept (monthly) for this case does not allow a business to use the receipts on 1st or 2nd July to balance the 30 June receipts. Such an act causes a cumulative error to recompense willfully earlier receipt problems. This is fraudulent as it is a willful error, which makes such an act unethical. Ethical considerations are vital for every business to ensure their receipt remains open until the last balance is received by maintaining uniformity in accounting books. 

What are the negative impacts that can happen if you do not follow Lisa Infante’s instructions to wait one more day to post the balance?

According to the case study, it is clear that failure to follow Lisa Infante’s instruction, the company is at risk of defaulting their loan agreement. This would result in laying off of all the employees, as well as the closure of the business.  

Who will be negatively impacted if you do comply? Provide a rationale for why these individuals will be impacted.

Failure to comply with Lisa Infante would greatly affect the business negatively, placing it at a risk to be closed. Closing the business will affect direct and indirect stakeholders to the business. Another group to be affected is the insurance stakeholders if the unethical practice is followed. The rationale for the impact to the stakeholders is that although leaving the receipt open for a day is appealing to the business, in accounting, this is a fraud and there is no small fraud as all are frauds. 

What is one alternative that you could pursue in this scenario? Support your recommendations with the information you learned in this class.

There is an alternative for the business rather than the unethical practice. For example, the business can approach one of their highly esteemed clients to make an early payment and be given an appealing discount. The second option to follow is to take a very short-term hand loan for at least two days to avoid unethical practices. The advantage of taking a short-term hand loan is that it has lower interest and thus, the company will not incur high costs (Bodenhorn, 2001). Another strategy is requesting from loyal customers advances or limited time cash sales from any surplus cash in their bank to be paid on the following day after receiving the $150,000 check from Oconto Distributors.

References

Bodenhorn, H. (2001). Short-term loans and long-term relationships: Relationship lending in early America.Lewis, M. K. (2001, June). Islam and accounting. In Accounting forum (Vol. 25, No. 2, pp. 103-127). Blackwell Publishers Ltd.

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