Scenario

Paige Carter is the controller for a public organization in Nashville, TN. She has just completed a meeting with the organization's CFO, Tommy Rich. Tommy Rich tried to convince Paige to classify some inventory items as fixed assets in an attempt to depreciate more assets for the upcoming accounting reporting period. Tommy Rich's proposal would depreciate more assets by misclassifying inventory as fixed assets in an attempt to reduce net income. Paige knows it is her responsibility to ensure that all items on the organization financial statements are recorded properly as required by the FASB and the AICPA Professional Code of Conduct. She has a great deal of pressure to reduce net income to reduce corporate income taxes and qualify for a company bonus. She does not want to disappoint the CFO, and her job may be at stake.

Question:

Show the primary ways in which both classifications would affect the future of the business (why should we classify inventory and fixed assets in the same account or separate accounts?).