Financial Accounting: An Integrated Statements Approach, 2nd Edition

Natalie:What do you mean? The guy had a master’s degree with straight A’s.

Pedro:Yes, well, last month he developed a new financial reporting system. He said we

could do away with manually preparing financial statements. The computer would

automatically generate our financial statements with “a push of a button.”

Natalie:So what’s the big deal? Sounds to me like it would save you time and effort.

Pedro:Right! The balance sheet showed a minus for supplies!

Natalie:Minus supplies? How can that be?

Pedro:That’s what I asked.

Natalie:So, what did he say?

Pedro:Well, after he checked the program, he said that it must be right. The minuses were

greater than the pluses...

Natalie:Didn’t he know that supplies can’t have a credit balance—it must have a debit

balance?

Pedro:He asked me what a debit and credit were.

Natalie:I see your point.

1. Comment on (a) the desirability of computerizing Goliath Supplies Co.’s financial reporting
   system and (b) the computer programmer’s lack of accounting knowledge.


2. Explain to the programmer why supplies could not have a credit balance.

Assume that you recently accepted a position with the Bozeman National Bank as an assistant

loan officer. As one of your first duties, you have been assigned the responsibility of evaluating

a loan request for $150,000 from Sasquatch.com, a small corporation. In support of the loan ap-

plication, Samantha Joyner, owner, submitted a “statement of accounts” (trial balance) for the

first year of operations ended December 31, 2006.

1. Explain to Samantha Joyner why a set of financial statements (income statement, statement
   of retained earnings, balance sheet, and statement of cash flows) would be useful to you in
   evaluating the loan request.


2. In discussing the statement of accounts with Samantha Joyner, you discovered that the ac-
   counts had not been adjusted at December 31. Analyze the statement of accounts (shown at
   the top of the following page) and indicate possible adjusting entries that might be neces-
   sary before an accurate set of financial statements could be prepared.


3. Assuming that an accurate set of financial statements will be submitted by Samantha Joyner
   in a few days, what other considerations or information would you require before making
   a decision on the loan request?

208 Chapter 4 Accounting Information Systems

Activity 4-6

Financial statements