Barbara’s Brownies produces different varieties of brownies that she sells to gr

Question

Barbara’s Brownies produces different varieties of brownies that she sells to grocery, candy, and gift shops. These sales are made with the terms FOB shipping point, and she generally ships the brownies on the same day that the order is received or on the next day if necessary. The company’s fiscal year end is December 31. During the last week of December Barbara takes a look at her financial reports before deciding when to ship orders received that week. If sales and profits for the month and year have been good, she may delay shipments until early January. If sales and profits have been poor, she will deliver all that she can in December.

1. With terms of FOB shipping point, when does Barbara record a sale?

2. Do you think it is ethical for Barbara to delay recording sales until the next year? Why or why not?

3. As a small business owner, what other considerations should Barbara consider when deciding whether or not to delay shipments?

Explanation / Answer

1)

With terms of FOB shipping point, Revenue is recorded when the item is transfered and the item is treated as transfered in case of FOB shipping point is when the item is shipped where the risk is transfered and treated as item is being delivered to party

Barbara should record a sale when the item is shipped .

2) It is not  ethical for Barbara to delay recording sales until the next year as Financial Statement should predict True & Fair View which means company performance should be evaluated correctly, as Stakeholder are misappropriated with the result as it does not depict true & correct view. As per GAAP we use accrual basis of accounting so as to give true view of company and if they divert their revenue to next year than financial statement are misappropriated and provided incorrect image of company

3. As a small business owner, what other considerations should Barbara consider when deciding whether or not to delay shipments?

As a small business owner , Barbara should consider when deciding whether or not to delay shipments are:

If there is tax saving or freight saving from delaying the shippment than Barbara should consider when deciding whether or not to delay shipments

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