Like regular accounting methods, large companies generally use accrual accounting. This method measures the success and position of a company by recognizing the economic situation of a company, regardless of when transactions take place. The procedure requires that all revenue be recognized on the exact date it was earned. As per correct GAAP accounting principles, the amount received should be credited to the revenue account and the debit should appear in the cash received or accounts receivable section. Accrual accounting combines current cash inflows and outflows with expected future cash inflows and outflows, it provides a clear and accurate picture of the company's financial position. Mike asks the employee to lie in the records to make his turnover appear better for the previous year, but the bonus doesn't start until January 5 of the following year. The amount received during the year should be credited to the unearned service account, since it is an unearned liability, the money should be debited from the cash account. The biggest problem with this unethical decision is the fact that by increasing the assets received for the previous year, the book value will essentially appear higher than it actually is, in exchange for sales revenue of Mike more attractive. The income statement will be changed because net income will appear higher than if GAAP was used and net sales will appear higher even though the policy will not begin until the following year. . The deferred amount would affect the balance sheet because the liabilities will be carried out the following year with cash not appearing in the income statement for the correct year and yet the...... middle of paper ...... are guarded by strict rules. guidelines. I would also explain the technical implications of falsifying statements with an effect on assets, liabilities and book value, which would allow Mike to focus on my decision making and see clearly into his thinking. I would also like to point out that by manipulating these finances, we could both face extreme penalties, including prison time. As a close friend, I guess he doesn't realize the implications, because he said, "I never understand why you accountants are so picky about these things anyway." » I know Mike is a very good boss who would never ask a close friend to do something that could legally put my situation in jeopardy. Finally, I would suggest a better way as a friend to deal with your financial situation often. There are fundraisers that can be organized to help someone I need, this would prevent anything illegal from happening..