Accounting 25th Edition by Carl Warren, James Reeve, Jonathan Duchac

Exercise 2

Financial statements
The following is an excerpt from a telephone conversation between Ben Simpson, president of Main Street Co., and Tami Lundgren, owner of Reliable Employment Co.
Ben : Tami, you're going to have to do a better job of finding me a new computer programmer. That last guy was great at programming, but he didn't have any common sense.
Tami : What do you mean The guy had a master's degree with straight A's.
Ben : Yes, well, last month he developed a new financial reporting system. He said we could do away with manually preparing an end-of-period spreadsheet (work sheet) and financial statements. The computer would automatically generate our financial statements with "a push of a button."
Tami : So what's the big deal Sounds to me like it would save you time and effort.
Ben : Right! The balance sheet showed a minus for supplies!
Tami : Minus supplies How can that be
Ben : That's what I asked.
Tami : So, what did he say
Ben : Well, after he checked the program, he said that it must be right. The minuses were greater than the pluses….
Tami : Didn't he know that Supplies can't have a credit balance-it must have a debit balance
Ben : He asked me what a debit and credit were.
Tami : I see your point.
1. Comment on (a) the desirability of computerizing Main Street Co.'s financial reporting system, (b) the elimination of the end-of-period spreadsheet (work sheet) in a computerized accounting system, and (c) the computer programmer's lack of accounting knowledge.
2. Explain to the programmer why Supplies could not have a credit balance.