Week 3 Accounting essay assignment 3

Week 3 Accounting essay assignment 3 - Accounting 1...

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Accounting 1 Accounting Methods Corriene Power ACC201: Principles of Financial Accounting Mrs. Regina Ivory January 8, 2011
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Accounting 2 Companies strive for their net income to increase rapidly year to year; it is a measure of success for a business. This is no different for Wilson Blowhard founder of his own communications business whom discovered through his company’s financial records that he was incurring a significant line expense that must be reported yearly according to generally accepted accounting principles (GAAP). The problem was Mr. Blowhard did not need all the line he was paying for because he was paying to make sure the line was available for future use. He came up with a solution, by capitalizing all the line cost charges and then depreciating them over ten years using one of three depreciation methods the amount of net income recorded on his company’s income statement could be increased. In this way Mr. Blowhard could show an increase in net income therefore increasing the value of the company. In addition to using different methods of recognizing depreciation expenses there are other ways to adjust financial records to make ones company look better while still following GAAP including deferring expense recognition until it can be matched with revenues using adjusting entries, only reporting interest under the operating activities section of the statement of cash flows, and using different inventory cost flow methods. If Mr. Blowhard had used the straight line method of depreciation for line cost charges than he would be producing equal amounts of depreciation expenses each year following the matching concept. The results to the financial statement is that the amount of depreciation is
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Week 3 Accounting essay assignment 3 - Accounting 1...

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