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.
Slater & Sons Corp 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, Slater 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.
Drew Bolton, a new accountant, was asked to record about $50,000 in inventory as having been received before month end. He argued that the shipping documents clearly showed that the goods were actually received on the 8th of the current month. His boss, busy with month-end reports, curtly tells Drew to check the shipping terms. He did so, and found the notation "FOB (free on board) shipper's dock" on the document. He hadn't seen that particular notation before, but he reasoned that if the selling company considered it shipped when it reached their dock, Slater should consider it received when it reached their dock. Drew did not record the sale until after month end.
Questions:
1. Why are accountants concerned with the timing in the recording of purchases?
2. Do you think that Drew made the correct decision? Why or why not?
3. Since the books are closed, as Drew's boss, how would you follow up with this situation?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
