he Impact of Adjusting Entries on the Financial Statements

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Ilene Renner was analyzing the adjusting entries for her corporation in preparation for creating her adjusted trial balance and financial statements for the period. She planned to present these financial statements to her banker to obtain a line of credit. Ilene inadvertently missed accruing the salaries for the employees for the last 3 days of the month, since the month ended on Wednesday but payday was Friday. After running the financial statements and reviewing the financial information compared to past months, she realized her error. In this review, Ilene noticed that her financial information looked more favorable for obtaining the line of credit she was requesting if she doesn’t correct her mistake. She also considered that these salaries would be recorded next month when paid, so it really didn’t matter if she did not record them in the current month. Ilene decides not to correct her errors and accrue the salaries just this one time, opting to enter all of the salary expense in the next month’s records instead of accruing what needs to be entered in the current month.

  • Are there impacts on the financial statements due to this error? What are they? Be specific.
  • Does the amount matter? Is there an accounting concept that allows for slight errors and omissions that do not impact the decisions made by company leadership? If so, what is it?
  • Who will be affected by Ilene’s decision?
  • Is this a simple matter of timing or is more at stake? Will Ilene’s financial statements look the same over the course of the year because of this choice? Or will there be differences?

**** this is a discussion assignment, only about a long paragraph is needed.

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