Question

Vitamin Mix manufactures vitamins and is struggling financially. It currently has a $5 Million line of credit and the bank will allow the line of credit if it can prove that at least $1 million in sales is achieved every month. At month end, not shipped product is invoiced as if it’s shipped.

If you were the accountant working at Vitamin Mix, what would you do?

(Short paragraph Discustion)

Answer 1

The accounting of products not shipped is invoiced as if it's shipped is not the current method of recognition. This will lead to window dressing and jsut showing the sales which in actual might not be sales. If i was an accountant until the goods are shipped they would not be recorded as shipped. This is only done to increase the sales and obtain the line of credit which is not the correct accounting treatment. Only when goods are shipped would I recognise them as sales and update the accounts accordingly.