Essay: Statement of Financial Accounting Standard

Essay: Statement of Financial Accounting Standard
June 8, 2011 Comments Off on Essay: Statement of Financial Accounting Standard Academic Papers on Business Studies,Sample Academic Papers admin

Sample Essay

The sales of the company were at par with expectations in early 2001 but as quarter was about to end Frances M. Flood, Chairman of the board of directors and CEO of the company, estimated that the company would not be able to meet its sales targets. In March 2001 Flood started to ship products to distributors in order to record sales when actually sales were not being made as per the distributor agreement. In order to inflate revenues and accounts receivable of the company Flood engaged in a secret agreement with one of the distributors Starin Marketing whereby Starin was allowed to receive goods but make payments to the company when the goods were actually resold instead of the usual 90 days. According to Statement of Financial Accounting Standard – SFAS 48 the revenue and accounts receivable on this transaction should not have been recorded until the amount had been received or the risks of the merchandise have been transferred to the buyer (FASB).

The company management had found a way to dispose inventory in order to meet sale targets set for each quarter by entering into sales agreements with several distributors whereby they were not required to pay the company until the products of the company were resold. The distributors sent blank purchase orders to the company that were filled in by company management according to quarterly sales targets and available merchandise on hand.

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