another accounting question...?

Question

Silva and Wanita Rodriques are the owners of Year-Round Landscape, Inc., a small
landscape and yard service business in southern California. The business is three years
old and has grown significantly, especially during the past year. To sustain this growth,
Year-Round Landscape must expand operations.

In the past, the Rodriques have been able to secure funds for the business from personal
resources. Now those resources are exhausted, and the Rodriques are seeking a loan
from a local bank. To satisfy bank requirements, Year-Round Landscape, Inc., must
provide a set of financial statements, including comparative income statements showing
the growth in earnings over the past three years. In analyzing the records, Silva notices
that the nominal accounts have not yet been closed for this year. Furthermore, Silva is
aware of a major contract that is to be signed on January 3, only three days after the
December 31 year-end for the business. Silva suggests that the closing process be
delayed one week so that this major contract can be included in this year’s operating
results. Silva estimates that this contract will increase current year earnings by 20%.

What accounting issues are involved in this case? What are the ethical issues?

Answer 1

The accounting issues is stumping me.

Accounting has to do with the recordkeeping of a business's finances. It is about preparing statements in accordance with accounting laws. True accounting professionals abide by the law first and by corporate policies second.

Does this help at all? I have recently taken a graduate course in accounting and made an A. I have taken undergrad courses in accounting and also made As. I love accounting.

Answer 2

Well, Silva is not following the periodicity assumption; a co. must fix its financial year-end and be consistent in that. And they have to ensure correct cut-off in recognising revenue and costs. The correct thing to do is to prepare an honest set of financial statements, and in a separate note, show the bank the contract signed on Jan 3 to let it know that it's got this big contract and that it will bring in net earnings of $xxx.