accountant at Infostore, a manufacturer of hard drives, CDs, and DVDs. Its repor

Question

accountant at Infostore, a manufacturer of hard drives, CDs, and DVDs. Its reporting year-end is Assume that you are the man 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 ase the company's tax liability by increasing expenses. Required: 1. 1) In which account should the purchase of CD raw materials be recorded? Which financial statement does this account show up on? 2. 2) How should you respond to this request by the chief financial officer?

Explanation / Answer

1. The purchase of CD raw material must be recoreded to Purchases Account. It effects on Statement of Income and expense Account (Under cost of goods sold) and the Balance Sheet i.e. Statement of Assets and Liabilities ( for recording closing stock)

2.The purchase of raw materials cannot be treated as supplies and expense as the raw material is used in the production of CD's and the closing stock of such raw material,if any must be recorded in the books of accounts.

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