Question

Review the following scenario:

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 Ahead. 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.
Answer the following questions:
a)What accounts do you see being affected as a result of Jacob Henson's actions?
b)Which accounts do you think would experience a debit?
c)Which accounts do you think would experience a credit?
d)How would a negative bank balance be listed in a trial balance?
e)Is there an ethical issue in this situation?
f)Do you approve or disapprove of Jason Henson’s management of Better Days Ahead’s funds?

Answer 1

Jacob Henson's actions have led to debits in the office equipment and fundraising expense accounts, and an overdrawn bank balance would appear as a credit, representing a liability. Ethical concerns may arise if these actions are contrary to the organization’s financial policies without proper oversight. Personal approval of Henson's management would depend on whether his strategies align with the organization's goals and financial health.

Step-by-step explanation:

In relation to Jacob Henson's actions as a new manager at Better Days Ahead, several accounts on the organization's financial statements would be affected. Office equipment acquisitions and increased spending on fundraising would result in changes to the organization's asset and expense accounts. Specifically:

• The office equipment account would experience a debit, reflecting the purchase of these assets.
• Fundraising expenses would also be debited due to the higher amounts spent on these activities.
• The bank account would show an overdrawn balance, which typically appears as a credit from the perspective of the organization (indicating a liability), but would be listed as a debit balance in the bank's records.

A negative bank balance, representing an overdraft, would be listed as a debit on a trial balance since from the bank's perspective, it is an asset. However, for Better Days Ahead, it would represent a liability and is typically listed under liabilities in the financial statements.

Regarding the ethical issue, one could argue there is an ethical concern if the overdrawn bank balance was not in line with the organization's financial policies and if there was not sufficient board oversight or approval for the increased expenditures. The management of funds needs to be transparent and in the best interest of the organization's objectives.

Personal approval or disapproval of Henson's management of funds would depend on whether his actions align with the organization's goals, bylaws, and financial policies. Without all the context, making a judgment on his management is speculative. Generally speaking, if the aggressive spending and overdrafts do not lead to sustainable growth or are not supported by a strategic financial plan, it would be disapprovable.