Al Bodkin, a New Employee of Crafter's Paradise, Recorded $1,000

question 26

Essay

Al Bodkin, a new employee of Crafter's Paradise, recorded $1,000 in consigned goods received as part of the firm's inventory. The goods were received one day after the end of the fiscal period, but Al reasoned that the goods should be included in inventory sooner because Crafter's paid the freight. The mistake was brought to his attention by the purchasing department who said the goods should not have been recorded as Crafter's inventory at all. Al told Sid Goza, the purchasing supervisor, that nobody needed to worry, because the mistake would cancel itself out the following month. In Al's opinion, there was no reason to get everyone excited over nothing, especially since it was monthly, and not annual, financial statements that were affected. Sid Goza has reported the problem to the accounting department.
Required:
You are Al's supervisor. Write a memo to Al explaining why the error should have been corrected.

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Definitions:

Equity Income

Income that comes from owning shares in a company, typically in the form of dividends paid out from the company's profits.

Internal Accounting Records

Documentation and books kept by an organization for its internal financial planning, monitoring, and reporting.

Consolidated Balance Sheet

A financial statement that combines the assets, liabilities, and shareholders' equity of a parent company and its subsidiaries into one document.

Trial Balance

A bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account column totals that are equal.