1. If the Association is likely to be reimbursed for the $10,800, it is not an expense of 2005.

The likelihood is that there will be a profit, but at this stage, one can’t be sure, even
though there was a profit in 2004. It seems unlikely in any event that there would be a
profit that wiped out the whole deficit. Exhibit A removes the whole $10,800 as an
expense; it becomes an account receivable from the Annual Meeting Committee.
However, those who argue strongly for conservatism might leave it as an expense. This
transaction shows how difficult it is to arrive at the “true” results, as is also the case with
some of the others. The 2004 annual meeting profit, not now known, is conceptually a
revenue of 2004. (But read on.)

2. The $3,400 annual meeting profit is revenue for 2004, conceptually. However, there
seems to be no feasible way of recording this revenue in the year of the annual meeting
because of the problem of paying outstanding bills for some months after the annual
meeting has taken place. It therefore can be argued that it is appropriately left in 2005,
which is done in Exhibit A. This practice can be justified on the grounds of materiality. If
eliminated from 2005, some corresponding adjustment for an estimated profit on the
2005 annual meeting should be made. With the adjustments made above, the 2005 results
has been changed from a surplus to a deficit. It is easy to visualize how discussions of
this type can become quite heated. They can be avoided in the future by preparing an
accounting manual that describes how each of these transactions should be handled. This
illustrates the importance of the consistency concept.

Expenses Adjustments Adjusted

Printing 92400 -11600 80800
Committee meeting expenses 49200 49200
Annual meeting advance 10800 -10800 0