Review The Ethical Issues In Dobbs Wholesale Antiques Chapte
Review The Ethical Issue Dobbs Wholesale Antiques In Chapter 5 Page
Review The Ethical Issue: Dobbs Wholesale Antiques in chapter 5 (Page 317). By Saturday, April 16, 2016 , address the following in your initial post: Under Dobbs FOB policy, when should the company record a sale? Do you approve or disapprove of Dobbs's manner of deciding when to ship goods to customers and record the sales revenue? If you approve, give your reason. If you disapprove, identify a better way to decide when to ship goods.
Is there an accounting rule against Dobbs's practice? By the end of the week, provide substantive responses to at least two other students' initial posts.
Paper For Above instruction
This paper critically examines the ethical issues surrounding Dobbs Wholesale Antiques' sales recording practices under the FOB (Free On Board) policy, discussing the appropriate timing for revenue recognition and evaluating the company's approach from an ethical and accounting perspective.
Introduction
The timing of revenue recognition is a crucial aspect in accounting, especially under policies like FOB shipping point, which determines when ownership transfers from seller to buyer. Dobbs Wholesale Antiques has adopted an accounting practice where it records sales at a specific point in the shipping process, raising questions about its ethical implications and compliance with accounting standards. This essay explores when Dobbs should record a sale under its FOB policy, whether its approach is justifiable, and if it complies with existing accounting rules.
Understanding FOB Policy
FOB, or Free On Board, is a shipping term used to clarify when ownership of goods transfers from the seller to the buyer. Under FOB shipping point, ownership—and consequently revenue—is recognized once the goods leave the seller's premises. Conversely, under FOB destination, ownership transfers only when the goods reach the buyer’s location. Assuming Dobbs follows FOB shipping point, the relevant question is at what point in the shipping process the company should recognize revenue.
Dobbs’s Practice: When Should It Record a Sale?
According to standard accounting principles, particularly those outlined by the Financial Accounting Standards Board (FASB), revenue should be recognized after the seller has substantially completed its performance obligations, and the risks and rewards of ownership have transferred to the buyer. For FOB shipping point, this transfer generally occurs when the goods are shipped. However, Dobbs’s specific practice involves recognizing revenue either before or at a particular stage of shipping, which may be ethically questionable if it effectively recognizes revenue before ownership has legally and practically transferred.
Ethical Evaluation of Dobbs's Practice
From an ethical standpoint, Dobbs's practice of recording revenue at a point before the actual transfer of risk and ownership crosses into aggressive revenue recognition, which can mislead stakeholders and distort financial statements. Ethical accounting requires transparency and adherence to recognized standards, preventing manipulation that inflates revenues or profits unfairly. If Dobbs recognizes sales prematurely, it may be considered unethical because it overstates revenues, potentially misleading investors, creditors, and regulators.
Proposed Ethical and Accounting Solutions
A better approach would be for Dobbs to recognize sales only when the goods are shipped and the risks and rewards of ownership have effectively transferred, typically at the point of shipment under FOB shipping point conditions. This practice aligns with generally accepted accounting principles (GAAP) and maintains transparency. Companies should also include clear disclosures about their revenue recognition policies to avoid any appearance of impropriety.
Accounting Rules and Compliance
Regarding accounting rules, the key standard is the revenue recognition principle outlined in GAAP, which stipulates that revenue should be recognized when earned and realizable. Recognizing revenue before shipment, in cases where ownership and risks have not yet transferred, violates this principle. Therefore, Dobbs’s practice may contravene GAAP if it recognizes revenue prematurely. Ethical compliance also involves following this rule consistently to ensure truthful financial reporting.
Conclusion
In conclusion, Dobbs Wholesale Antiques should recognize sales when the goods are shipped, and the transfer of ownership and risk occurs, consistent with FOB shipping point standards. Approving Dobbs's current practice would undermine accounting ethics and could violate GAAP principles. Adopting a more rigorous, standards-compliant practice not only aligns with ethical accounting but also fosters financial integrity and stakeholder trust. Transparent disclosure of revenue recognition policies further enhances credibility and ensures compliance with regulatory standards.
References
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Financial Accounting Standards Board. (2014). Revenue from Contracts with Customers (Topic 606). FASB.
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