Ethical Dilemma in Cash Management: A Case Study of Linbarger Company

ACCOUNTING
STUDENT ID
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Question 1
With regards to the loan terms, it is essential that Linbarger company must maintain a closing
cash balance of atleast $ 200,000 on a monthly basis. Based on the given scenario, it is
apparent that for the June month ending , the cash balance for the company is standing at
80,000 and hence Lisa is requesting the financial controller to keep the cash receipts book
open for one more day so that incremental cash can be received from the distributor and the
minimum balance condition is satisfied. Thus, the key accounting problem which has been
highlighted in the given case relates to cash management. The company was aware of the
obligation of the minimum closing balance that it required and hence it should have been
proactive to look at ways of ensuring that short term funding mechnism are available in the
condition there is a particular shortfall so that there is no breach of the terms of the loan given
by the insurance company. The dismal cash management of the company is the real reason
for the current ethical crisis faced by the financial controller (Deegan, 2014).
Question 2
The desired action of ensuring that cash receipts is allowed for one more day in order to
ensure that the minimum cash requirement condition would be fulfilled would evidently be
termed as unethical action. The financial vice president also must not encourage such an
unethical behavior. In accordance with the accounting periodicity concept, with regards to
account book closure, uniformity is to be exhibited. As a result, the cash received after June
30 should not be included in the June 30th closing balance. Further, this practice in the long
run could be responsible for cumulative errors on account of errors done in the previous
months which lead to misrepresentation of key financial information for the users. Thus, the
given action of financial controller would have serious ethical implications (Caanz, 2016).