Ethical Obligations and Decision-Making in Accounting 2nd Edition by Steven Mintz, Roselyn Morris

Exercise 3

Assume a local health club, Texas Two-Step (TTS), records 100 percent of amounts received from membership fees in the month the cash is received rather than to accrue it over the twelve month period of membership. The reason given is that TTS does not specifically provide any services for members after the time the fees are paid. Do you agree with TTS’ accounting? Why or why not? Assume the accounting does not comply with GAAP, explain how the books should be corrected when the improper accounting is discovered.

Step 1 of 3

Audit:

The audit is the process of checking the financial statements of a company `to ensure that it is 100% authentic and free from any kind of bias or fraud.

GAAP: Generally Accepted Accounting Principles.

This is a set of basic rules and principles set by the Financial Accounting and Standard Board (FASB). These rules help the manager in managing accounts properly. It increases the transparency of accounts. It helps in fair representation of accounts.