You are the managerial accountant at Infostore, a manufacturer of hard drives. 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 raw materials in anticipation of rapid sales growth beginning in January. The chief financial officer tells you to record the purchase of raw materials as an expense in the current year; this would decrease the company’s tax liability by increasing expenses and reducing income. Required In which account should the purchase of raw materials be recorded? How should you respond to this request by the chief financial officer?
You are the managerial accountant at Infostore, a manufacturer of hard drives. 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 raw materials in anticipation of rapid sales growth beginning in January. The chief financial officer tells you to record the purchase of raw materials as an expense in the current year; this would decrease the company’s tax liability by increasing expenses and reducing income.
Required
In which account should the purchase of raw materials be recorded?
How should you respond to this request by the chief financial officer?
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