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How to record entertainment and travel expenses accordingly
On a recent trip to Africa, J. T. Brown, sales manager of Prompt Technology, took his wife along at company expense. Linda White, vice president of sales and Brown’s boss, thought his travel and entertainment expenses seemed excessive. But White approved the reimbursement because she owed Brown a favor. White was aware that the company president reviews all expenses recorded in the cash payments journal, so White recorded Brown’s wife’s expenses in the general journal as follows: debit to Sales Promotion Expense for $9,100 and credit to Cash for $9,100.
Answer the following questions:
- Does recording the transaction in the general journal rather than the cash payments journal affect the amounts of cash and total expenses reported in the financial statements?
- Why did White record these expenses in the general journal?
- What is the ethical issue in this situation? What role does accounting play in this issue?
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