managerial accountant|Quick homework help
Posted: January 27th, 2023
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 the 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
- In which account should the purchase of CD raw materials be recorded?
- How should you respond to this request by the chief financial officer?
SOLUTION
To address the chief financial officer’s concern about having enough cash to pay the expected income tax bill, I would recommend several strategies:
- Reduce expenses: Review all expenses and identify areas where costs can be reduced. This could include negotiating better prices with suppliers, reducing staff or cutting back on discretionary spending.
- Increase revenue: Identify ways to increase revenue, such as increasing sales, implementing a price increase, or launching new products.
- Improve cash flow management: Analyze and improve the company’s cash flow management practices, such as implementing strict credit policies, improving collections processes and better forecasting future cash needs.
- Consider short-term financing: If the company is expecting a temporary cash flow shortage, short-term financing options such as a line of credit or short-term loan may be considered.
- Tax Planning: Review the tax laws and regulations, and plan ahead to minimize the tax bill, this could include deferring income or accelerating expense
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