Question

Assume that you are the managerial accountant at Infostore, a manufacturer of hard drives, CDs, and DVDs. Its reporting year-end is December 31. The chief financial officer is concerned about having enough cash to pay the expected income tax bill because of poor cash flow management. On November 15, the purchasing department purchased excess inventory of CD raw materials in anticipation of rapid growth of this product beginning in January. To decrease the company’s tax liability, the chief financial officer tells you to record the purchase of this inventory as part of supplies and expense it in the current year; this would decrease the company’s tax liability by increasing expenses.

Required:

1. In which account should the purchase of CD raw materials be recorded?

2. How should you respond to this request by the chief financial officer?

Answer 1

1

The purchase of CD raw materials be recorded in" Raw Materials Inventory account "

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2

Advise the chief officer that excess inventory of CD should only reported as Raw Materials Inventory and not as a supply expense because by showing Raw Materials Inventory of CD as supply expanses accountant is not carrying out his own responsibilities properly .

Accountant of the company should provide accurate information about the company's transaction. If accountant is knowingly record the inventory as Supply (i.e. expanses), accountant is breaking the law of account .So here there are chance that account might lose his job and credibility as an accountant at the same time the organization might stuck in to the trouble for breaking the law.

If chief officer of the company emphasis you to apply this idea to record the inventory as supply expanses then you discuss this issue to company’s audit committee, board of directors and the owners of the company. in this way the auditor , director and owner will know about ongoing activity within company and they might assist you for solving this problem.