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. Purchase of CD Raw Materials should be recorded in Inventory-Raw Material account but not as part of Supplies and expenses.Stock which is not used for production should be shown as asset insted of consumption.Journal should be recorded would be like debting Inventory-Raw Material and crediting the Accounts payable account.

2. You need to respond to Cheif financial officer  as To decrease the company's tax liability recording as part supplies and expenses is an inaccurate and Unethical which will result as tax fraud.Due to that company may face sever legal issues with the Tax department and will result as loss of goodwill to company.

I hope this will help you .If you need any clarification, can ask in comments section.