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Apologies for being so late to the party.
 
A banks primary way to generate income is through yield
spread, or the difference between the interest rate paid to the customers’
interest bearing accounts and the interest rate of the loans originated.  If that yield spread becomes small, then it
places more pressure for a bank to create income from a more nontraditional source,
hence increased service charge fees and credit card fees.  

When Wells Fargo incentivized their employees to create fake
accounts, they did generate income from service fees unbeknownst to their
customers, but they also put their bank at risk because it has artificially increased
the bank’s allowance for additional loans to be made.  

A banks accounting entry would show up as if a customer’s
account was opened, a debit to cash and a credit to an interest bearing deposit
(liability) would be created, when a service charge was created, a debit to the
customers deposit account and a credit to a service charge revenue was created.

Retained earnings would increase with the service charges
created, but not when new checking accounts were created.  There would probably be an indirect increase
to retained earnings from any loan yield spreads these false checking accounts
created as well.

I do not consider this an accounting error, I believe this
to be an issue of fraud the bank simply chose to ignore. 

# data[].attributes.subject
Apologies for being so late to the party.
 
A banks primary way to generate income is through yield
spread, or the difference between the interest rate paid to the customers’
interest bearing accounts and the interest rate of the loans originated.  If that yield spread becomes small, then it
places more pressure for a bank to create income from a more nontraditional source,
hence increased service charge fees and credit card fees.  

When Wells Fargo incentivized their employees to create fake
accounts, they did generate income from service fees unbeknownst to their
customers, but they also put their bank at risk because it has artificially increased
the bank’s allowance for additional loans to be made.  

A banks accounting entry would show up as if a customer’s
account was opened, a debit to cash and a credit to an interest bearing deposit
(liability) would be created, when a service charge was created, a debit to the
customers deposit account and a credit to a service charge revenue was created.

Retained earnings would increase with the service charges
created, but not when new checking accounts were created.  There would probably be an indirect increase
to retained earnings from any loan yield spreads these false checking accounts
created as well.

I do not consider this an accounting error, I believe this
to be an issue of fraud the bank simply chose to ignore. 

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Sean Doolin

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This is NOT an accounting error, but pure fraud. Retained earnings would be overstated due to credits for fraudulent sales.  Because of the bonuses being handed out for these sales, cash would be credited in order to pay out the bonuses.  There could have been associated changes in the costs of goods sold journal as well.  The article states that the sales increased, but that so did fees and interest on the phantom accounts.  This whole situation makes me lose faith in humanity.  How could anyone sleep at night doing this sort of thing?

Laura Shook

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The company might have debited cash and credited sales when reporting the revenue from opening the new accounts. I don't know how the money was accounted for from the customer's side of it. The retained earnings were inflated from the illegitimate sales of new accounts being credited from sales revenue and debited to retained earnings. To make it right they would have to reduce the sales revenues, retained earnings, and cash accounts to make their earnings appear as they should without the issue having happened. This would cause a loss to appear on paper but it would make things correct in actuality.

Brandon Mueller

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I would not consider this an accounting error.  I would consider it as fraud. As pertaining to what accounts would be affected I would say Cash is going to be CREDITED when Wells Fargo pays the fines and the expense account Fines & Penalties would be DEBITED. Which I believe is not tax deductible and would probably be closed directly to retained earnings. When Wells Fargo refunds the service fees and income it received from the fraudulent accounts I would imagine that Cash would be CREDITED and Refunds would be DEBITED which may just be handled as normal business activity. The refunds would probably be treated as a regular expense that would close to Income Summary which would determine if the current period shows a Net Income or Loss with all those refunds coming through. That would then either CREDIT Retained Earnings if it was a Net Income or DEBIT Retained Earnings if it was a Net Loss. The Fines and Penalties would be a DEBIT directly to Retained Earnings so that it would not be an income tax deduction. - Robert D. Womack

WOO PIG SOOIE!!!!  WERE YALL AS JACKED UP AS I WAS?!?!?!

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If there Sales was overstated in my opinion it would mean that Revenue account was overstated which in turns means that Retained Earnings was also oversated.

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If there Sales was overstated in my opinion it would mean that Revenue account was overstated which in turns means that Retained Earnings was also oversated.

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Korene Davis-Smith

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Regarding the initial transactions of transferring money from one account to another to create a false account and sale, I would say a debit was made to the current account/asset and was credited to the withdrawal account. Then it was debited to the withdrawal account and credited to the new account, triggering a new account sale that caused the income for that period on the retained earnings statement to be overstated. This would be regarded as an unusual gain, since an unprecedented amount of new accounts were opened with the same banking environment as before. The only variable was the incentive to open more accounts.-Andrea Jobe

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I'm not really sure what accounts would be debited and credited to make this right. As restitution is made to the customers I would expect Wells Fargo to debit its customer accounts and credit its cash. I don't really know what would be debited to offset a credit to 'Fines Payable'. I don't think I've had a class where they teach you how to document penalties for illegal activity. Would Retained Earnings be affected? Maybe not. The dollars that went into Retained Earnings were real earnings - they were just stolen from customers if I understand this situation correctly. I don't think this qualifies as an accounting error. It wasn't a mistake. I hope its unusual and infrequent enough to be an extraordinary item/event.
~Danna Weaver

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If retained earnings were to be adjusted it would be for the excess fees collected on the false accounts, since that is prior period adjustment.  My gut tells me to include on income statement under "Other Expenses and Losses."

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If retained earnings were to be adjusted it would be for the excess fees collected on the false accounts, since that is prior period adjustment.  My gut tells me to include on income statement under "Other Expenses and Losses."

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Lisa Barnett

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They would have to do adjusting entries to service revenue (decrees it), add to expense account for lawsuit, decrease fee revenue, pray to their P.R. guys, and increase their account liability. Their capital will decrease and so will dividins payable. 

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They would have to do adjusting entries to service revenue (decrees it), add to expense account for lawsuit, decrease fee revenue, pray to their P.R. guys, and increase their account liability. Their capital will decrease and so will dividins payable. 

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_Christian sbait

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In my opinion, the journal entry that occurred was: 

If sales were over overstated, then the journal entry that occurred
was --  

 

            Debited-- cash
or A/R 

            Credited-- Sales
 

 

             

I believe Retained Earnings to be all prior years earnings,
therefore everything the company has ever made is in that account. So because
the employees were pulling money from real accounts to fund these false
accounts they were over stating cash, thus if the sales/cash is over stated
then Retained Earning will be over stated. 

# data[].attributes.subject
In my opinion, the journal entry that occurred was: 

If sales were over overstated, then the journal entry that occurred
was --  

 

            Debited-- cash
or A/R 

            Credited-- Sales
 

 

             

I believe Retained Earnings to be all prior years earnings,
therefore everything the company has ever made is in that account. So because
the employees were pulling money from real accounts to fund these false
accounts they were over stating cash, thus if the sales/cash is over stated
then Retained Earning will be over stated. 

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-- Meagan Delao