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accounting - Assignment Example
Author : ihartmann
Finance & Accounting
Pages 3 (753 words)
Companies should be required to use the same accounting method for inventory. That would ensure that there is no exploitation of the customers because of the inventory methods that are been used by companies…
Uniformity will allow for comparisons in the industry as a whole and that will ensure that the best performing entities are noted. The other advantage of uniform accounting is the fact that it will be easier for the relevant authorities to check the books of accounts when it is required. That will reduce any instances of tax evasion or any other crimes that are associated with manipulation of financial records. The inventory accounting method that I would recommend is the use of the average method. The average method is fairer in the setting of the price on the side of the seller and the customer. That will ensure that the seller does not incur any loss because of changes in prices that may be significant. The method will also ensure that there is no artificial shortage caused by the sellers in an attempt to manipulate their profits. Question 9 In the case of world com, the recording of expenses as capital expenditure caused an overstate mate of the company profits. The profits of the company are understated because the company recorded fewer expenses. The company also tends to build on its financial position because the expenses are been recorded as capital expenditures that usually build on the financial position of the company. The evil behind the recording of the expenses as capital items is the fact that the financial position of the company is wrong. ...