For this assignment you are to assume that you are the managerial accountant at Bikestore, a manufacturer of high end off-road bicycles. Bikestore uses a periodic inventory system and prepares annual financial statements on 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 bike parts (raw materials) in anticipation of rapid growth of its bicycles 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.
1. In which account should the purchase of bicycle parts be recorded?
2. How should you respond to this request by the chief financial officer?
For this assignment you are to assume that you are the managerial accountant at Bikestore, a manufacturer of high end off-road bicycles. Bikestore uses a periodic inventory system and prepares annual financial statements on 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 bike parts (raw materials) in anticipation of rapid growth of its bicycles 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.
1. In which account should the purchase of bicycle parts be recorded?
2. How should you respond to this request by the chief financial officer?