Accounting and Ethical Issues Involving the Closing Process
Response to the following problem:
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?