Ahmed was accounting manager at ABC co and he is a cousin of Adel, the CEO of ABC co. The CEO stood to earn a substantial bonus if ABC increased net income by year-end. Ahmed, the accounting manager, boasted to Adel, the CEO, that he knew some accounting tricks that could increase company income by revising a few journal entries for rental payments on production units.
At the end of the year, Ahmed changed the debits from ‘rent expenses’ to ‘prepaid rent’ on several entries. As a result, Adel got his bonus and the deviations were never discovered.
1- How did the change in the journal entries affect the net income of the company at year-end?
2- Who gained and who lost as a result of these actions?