Textbook Problem

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 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 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.