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

1. Two peer-reviewed scholarly articles are needed for the post. The word count needs to be 125 to 200 words.
2. You do need to include in-text references with only either the author’s last name or a short title of the work and the page number in parentheses after the material from that work. The in-text references are included in the word count.
This was the question the Charissa respond to below. 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
3. In which account should the purchase of CD raw materials be recorded?
4. How should you respond to this request by the chief financial officer?
5.
• Please reply to Matthew below post. Did he cover the above question?
• Regarding the purchase of CD raw materials, the most likely account for record would be raw materials inventory. Accountingtools.com defines Raw materials inventory as “the total cost of all component parts currently in stock that have not yet been used in work-in-process or finished goods production”. The site continues to say that “The cost of raw materials on hand as of the balance sheet date appears in the balance sheet as a current asset. Raw materials may be aggregated into a single inventory line item in the balance sheet that also includes the cost of work-in-process and finished goods inventory.
• Raw materials of all types are initially recorded into an inventory asset account with a debit to the raw materials inventory account and a credit to the accounts payable account.” This means that the chief financial officer’s request to record the purchase of raw materials as an expense, according to this, is mostly likely inaccurate, and possibly illegal. According to boundless.com, an expense is recognized as an expense under conditions. It states: “Since most businesses operate using accrual basis accounting, expense recognition is guided by the matching principle. For an expense to be recognized, the obligation must be both incurred and offset against recognized revenues.” Since that these raw materials are, as stated in the prompt, ‘in anticipation of rapid-growth’, there isn’t any assurance that it’s incurred and offset against recognized revenues, and thus fulfills the matching principle. This also is easily compared to Wild’s example of the ‘fraud triangle’. Wild states: “Fraud involves the use of one’s job for personal gain through the deliberate misuse of the employer’s assets. Examples include theft of the employer’s cash or other assets, overstating reimbursable expenses, payroll schemes, and financial statement fraud. Three factors must exist for a person to commit fraud: opportunity, financial pressure, and rationalization.” (Wild, 22e). In this case, the type of fraud would follow the financial pressure segment of the triangle. Now with regards to responding to his request, I can’t fully go through with the action ethically. Leviticus 19:35 states ‘You shall do no wrong in judgment, in measurement of weight, or capacity’, and I can’t fully believe that this is the right thing to do. Though I’m unsure if I’d quit altogether, I’d probably reinstitute the possible problems with this course of action and request another form of action be taken.


• Source: Boundless. “Current Guidelines for Expense Recognition.” Boundless Accounting. Boundless, 21 Jul. 2015. Retrieved 26 Feb. 2016 from https://www.boundless.com/accounting/textbooks/boundless-accounting-textbook/detailed-review-of-the-income-statement-13/expense-recognition-86/current-guidelines-for-expense-recognition-392-6590/

• Raw Materials Inventory Definition – AccountingTools. (n.d.). Retrieved February 25, 2016, from http://www.accountingtools.com/definition-raw-materials-inven

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