Question

Analyse and discuss how each of the below accounting methods provide management with ability to influence profit of the company. Provide examples.

• Uncollectible accounts
• Inventory
• Depreciation
• Depletion
• Amortization
• Non-operational and non-recurring items

Please type the answer on the computer, not on the notebook using the pen

Answer 1

Uncollectible Accounts are the accounts which are not receivable or we can say are bad debts for the company. These can directly afftect the profitability of the company by reducing profits.

Inventory - if you buy less inventory, your income statement figure for COGS will b lower than if you bought more, assuming you've sold what you bought. A lower COGS expenditure can increase your net income and vice versa.

Depreciation expense has a direct effect on the profit. The larger the depreciation expense in a given year, the lower the company's net income. however, because depreciation is a non-cash expense, the expense doesn't change company,s cash flow.

Depletion is usually used bhy energy and natural-resource firms. where it differs from depreciation id that it refers to the gradual exhaustion of natural resourse reserves as opposed to the wearing out of depreciable assets or aging life of intangibles and has same effect as of depreciation or amortization on income statement as it is also a direct expense.

Amortization is the practice of spreading an intangible asset's cost over that asset's useful life. it is also a direct expense and effects the same ways depreciation does.

Non-operational and Non-recurring items are the items or events which are not normal in operation of the business and therefore income is derived after separating such kind of expenses.