Answer to Question #186364 in Economics for Kameron

Question

Case study: Longview Regional Hospital has established a set of financial controls that include making department supervisors responsible for operating their functions within the approval budget. Outside auditors are hired by Longview to review financial activity each year. Sampling of financial transactions by the auditors revealed two errors:

1. Early in the fiscal year, Longview contracted with a new landscape maintenance company at a monthly contract rate of $1,500. Personnel in the accounting department set up a vendor account for the new landscape company and properly coded the payment to an account titled contractual services. An error was made in coding the charge to the housekeeping department rather than the facilities department. Total charges recorded during the year totaled more than $10,000.
2. What recommendations would you make to the accounting staff at Longview? Why?

Answer 1

Since there was an error in the coding, it is necessary to make an adjustment at the end of the year before rolling up the annual balance sheet by means of debit and credit entries from the item business expenses to the item service. Since these articles are similar in content but differ in the areas of service, this operation must be performed before the close of the financial year.