Discussion Responses: Credit accounts
Please read and respond to each discussion (1 and 2) . Tell what you agree/disagree, like/dislike, if you have any questions ask them. I have provided the topic of what we wrote about, and then the two responses that were given to the topic. You are writing in regard to the two responses. Please keep them separate.
Topic
Better Days Ahead, a charitable organization, has a standing agreement with First National Bank. The agreement allows Better Days Ahead to overdraw its cash balance at the bank when donations are running low. In the past, Better Days Ahead managed funds wisely and rarely used this privilege. Jacob Henson has recently become the manager of Better Days. To expand operations, Henson acquired office equipment and spent large amounts on fundraising. During Henson's tenure, Better Days Ahead has maintained a negative bank balance of approximately $10,000.
Step 2 Post to the discussion board.
Respond to the following questions and, if appropriate, include personal experience as part of your answers.
- What accounts do you see being affected as a result of Jacob Henson's actions? Which accounts do you think would experience a debit? Which accounts do you think would experience a credit?
- How would a negative bank balance be listed in a Trial Balance?
- Is there an ethical issue in this situation?
- Do you approve or disapprove of Jason Henson's management of Better Days Ahead's funds?
Responses
Discussion 1:
What accounts do you see being affected as a result of Jacob Henson's actions? Which accounts do you think would experience a debit? Which accounts do you think would experience a credit?
The Assets, Liabilities, Expenses, Equity, and the Revenue accounts would be affected.
Credit: Liabilities and Expenses accounts.
Debit: Asset, Equity, and Revenue accounts.
- How would a negative bank balance be listed in a Trial Balance?
The negative balance would be considered an overdraft from the checking account and would be placed in the debit column on the Trail Balance Sheet.
- Is there an ethical issue in this situation?
Mr. Jacob Henson used the money and overdraft just so that he could buy more equipment for the office. So, no, there was nothing ethical about the situation, unless, the equipment he bought for the office was going to benefit the company later down the road.
- Do you approve or disapprove of Jason Henson's management of Better Days Ahead's funds?
I completely disapprove of how Jason Henson's management of the Better Days Ahead's fund. To begin, it was not his money to spend and secondly, it was irresponsible.
Discussion 2:
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In this particular case, the accounts of this company will be affected. The company can expect the following accounts to experience a credit: Expenses, assets (the purchase of office equipment), and liabilities. The company can expect the following accounts to experience a debit: Equity and revenue. With such a large amount of debt, the negative bank balance ($10,000) would be listed as an overdraft in a Trial Balance, to show the debt. When Henson made the purchase for office equipment, he hoped that it would help expand relations and improve company revenue (over time). Based on this purpose, it does not appear that Henson made an unethical decision. Moreover, because the bank gives the company permission to overdraft, it is not unethical to do so. However, it can be an unwise decision. I do not approve of Henson’s management of the Better Days Ahead’s funds. Although the bank may give the company permission to overdraft their account, it is unwise to do so. When managing funds, it is extremely important to avoid negative balances. In addition, the negative balance occurred because Henson purchased office equipment––something that is most likely not a necessity (this is most likely an upgrade of equipment). Lastly, great amounts of debt can cause the company to become nonexistent if donations do not pick back up in the near future. |
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Response I
I agree that the accounts to be affected are liabilities and expense accounts being credit accounts, but the overdraft is also a credit balance since it is a short-term liability. On the other hand the Debit accounts involve the Asset account, Equity and Revenue, with office equipment being the major acquisition
I disagree with the idea that an overdraft is recorded as a debit account in the Trial Balance, as it is a liability, and liabilities have credit balances. This is a negative cash balance account to be settled unlike cash in hand and cash at the bank, which are current assets.
Even though, Mr. Henson heads charitable organization, purchasing new equipment through and relying on overdraft is not unethical. However, the investment strategy should reflect the ethical standards of the organization.
I disagree with Mr. Henson’s management of the organization, as t...