Title: Ethics Assessment #1 Answer Key
Course: SkillsCom BA 211 15.0 > Section: Credit Unit 1 Module 2

Ethics in Action

Case #1

R#1        Lynne should not debit the Dividends account rather than the Legal Expense account. It would be wrong to debit the Dividends account because the transaction was not a dividend but rather the payment of an expense.

R#2         It does matter how the $3,800 payment is recorded. By debiting the Dividends account rather than the proper expense account, the net income will be higher on the income statement. While it is true that the trial balance will show that total debits equal total credits either way, it will not reveal inaccurate or improper individual account balances. The purpose of properly recording each business transaction is to provide a set of financial statements that accurately reflect the results of operations and related financial position.

R#3         Lynne does have an ethical responsibility to accurately record the transactions as she is providing financial statements to the bank. Since the bank is relying on the accuracy of the financial statements, it assumes that the income statement properly includes all the expenses for the business. By omitting the $3,800 expense, Lynne is giving the bank an inaccurate and misleading income statement.