Recall the ethical dilemma in the “You Call It” box on page 317 that suggested delaying recognition of accrued expenses and early revenue recognition.

Required

1. Relying on the matching principle, discuss the rationale for revenue recognition. Explain why the delayed recognition of accrued expense and the early recognition of revenue would violate GAAP.

2. Ifthe president insists on such accounting treatment, what would you do to remedy this ethical situation?

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YOU CALL IT Answer-p. 322 Financial Officer At year-end, the president instructs you, the financial officer, not to record accrued expenses until next year because they will not be paid until then. The president also directs you to record in current-year sales a recent purchase order from a customer that requires merchandise to be deliv- ered two weeks after the year-end. Your company would report a net income instead of a net loss if you carry out these instructions. What do you do?