Larry Foster and His Banker

Larry Foster and his banker were reviewing the monthly income statements for is antique business, Foster's Collectibles. The banker was impressed with the growth of sales revenue and net income for January as compared to January of last year. Larry knew it had been a good month, but didn't think it had been spectacular. Suddenly, Larry realized that he failed to close out the revenue and expense accounts for the prior year, which ended December. Because those temporary accounts were not closed out, their balances were included in the January accounts for the current year. Larry then realized that the banker had the financial statements but not the general ledger or any trial balances. Thus, the banker would not be able to see that the accounting cycle was not properly closed and that this failure was creating a misstated income state for January of the current year. The banker then commented that the business appeared to be off to such a good start that he would approve a line of credit for the business. Larry decided not to say anything because he did not want to lose the line of credit. Besides, he thought, it really did not matter that the income statement was misstated because his business would be sure to repay any amounts borrowed.
Instructions:
Answer the following questions:
1. Should Larry have informed the banker of the mistake made and redone the current year's January statement?
2. Was Larry's Failure to close the prior year's revenue and expense accounts ethical?
3. Does the fact that the business will repay the loan matter?