Holmes Corporation manufactures electronic components for use in many consumer p

Question

Holmes Corporation manufactures electronic components for use in many consumer products. Their raw materials are purchased literally from all over the world. Depending on the country involved, purchase terms vary widely. Some suppliers, for example, require full prepayment, while others are content to receive payment within six months of receipt of the goods.
Because of this situation, Holmes never closes its books until at least ten days after month end. In this way, it can sort out ownership of goods in transit, and document which goods were received by month end, and which were not.
Manya Andre, a new accountant, was asked to record about $70,000 in inventory as having been received before month end. She argued that the shipping documents clearly showed that the goods were actually received on the 8th of the current month. Her boss, busy with month-end reports, curtly tells Ann to check the shipping terms. She did so, and found the notation "FOB shipper's dock" on the document. She hadn't seen that particular notation before, but she reasoned that if the selling company considered it shipped when it reached their dock, Holmes should consider it received when it reached Holmes's dock. She did not record the purchase until after month end.

1.    Why are accountants concerned with the timing in the recording of purchases?
2.    Was there a violation of ethical standards here? Explain.

Explanation / Answer

1. The accountants are concerned with the timing in the recording of the purchases because it will impact the record book that I being kept for the month. It would have no effect over the overall processes of the company but without being able to balance their cash received and cash spent in the book and there would be a huge confusion.

2. Yes, there was a violation of ethical standards here. This is due to the fact that it as the responsibility of the accountant to successfully verify the date the shipment had been received and not just suppose that it would have been and report it to her seniors. This is an ethical misconduct and therefore, violate ethics.

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