Explain how the choice of one of the following accounting methods over the other raises or lowers
Question:
(a) Use of FIFO instead of LIFO for inventory costing.
(b) Use of a 6-year life for machinery instead of a 9-year life.
(c) Use of straight-line depreciation instead of declining-balance depreciation.
Step by Step Answer:
a During a period of inflation net income will be less under the LIFO invento...View the full answer
Accounting Tools For Business Decision Making
ISBN: 9780470377857
3rd Edition
Authors: Paul D. Kimmel
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In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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