Dollar General - Hbs
Dollar General Case
1. Consider the $13.4 million of freight costs. What is the correct (GAAP) method of accounting for these? How did Dollar General in fact originally account for these costs? (Include in your answer a table of the effects on income in any years affected, both before and after tax, of the correct accounting and the accounting they originally used.
The correct GAAP method to account for freight costs is as an expense of Cost of Goods Sold (COGS) that occur at the time services are performed and completed. This is a cost of conducting on-going operations (in-bound supplies, distribution and re-distribution). The freight costs should be expensed as occurred which will be at the time invoice is received and approved for payment. The approval of these invoices concurs that services have been performed.
Dollar General should accrue for these expenses as payables liabilities, of which, they will pay via their cash asset account at the time the payable......
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