Question

1.) Examples of where accounting can produce different numbers legally (ethically)? (need 3-4 examples, COGS and bad debts as two but need to be explained in more depth) Has to be two about COGS and bad debts (2 examples however need to be explained in more depth)

Answer 1

Accounting methods may differ for Inventory, Bad Debts, PPE, COGS, Depreciation, Accumulated Depreciation, Premium or Discount on issue of Bonds.

1. Bad Debts and Accounts Receivable: Allocation of bad debt expense differ from method to method. We have Sales percentage method and Aging of Accounts Receivable method for allowing for bad debts. Likewise, the amount of baddebts differ and the net amount of Accounts Receivable in the Balance Sheet also differ.

2. Inventory, COGS:

Inventory valuation differs among FIFO, LIFO, Average Method, dollar value LIFO. As the ending inventory value changes, the COGS also gets changed. These methods are ethical and legal.

3. Depreciation, Accumulated depreciation, PPE:

There are different depreciation methods like Straight line depreciation method, Sum of years digits method, double declining balance method, production units method. All the methods are legal and produce different depreciation amounts. As depreciation changes, accumulated depreciation varies and Net amount of PPE also gets effected.

4. Amortization of Premium or Discount on issuance of Bonds, Premium or Discount on issue of Bonds, Carrying Value of Bonds Payable:

There are 2 methods to amortize Bond Premium or Discount and they are Straight Line Method and Effective Interest Method. These methods produce different amounts of amortization which in turn effects the balance of premium or discount on issue of bonds and the carrying value of bonds.

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All the above listed methods are legal and ethical but produce different numbers within same accounts.