Chapter 7

Accounting Alternatives

In This Chapter

arrow Realizing there’s more than one way home

arrow Examining the effects of alternative accounting methods on profit and balance sheet

arrow Taking a closer look at cost of goods sold and depreciation expenses

arrow Scanning the revenue and expense horizon

This chapter explains that when recording revenue, expenses, and other transactions of a business, the accountant generally must choose among different methods for capturing the economic reality of the transactions. You might think that accountants are in unified agreement on the exact ways for recording business transactions, but I must tell you that this isn’t the case. An old joke is that when two economists get together there are three economic opinions. It’s not that different in accounting.

The financial statements reported by a business are just one version of its financial history and performance. A different accountant for the business undoubtedly would have presented a different version. The income statement and balance sheet of a business depend on which particular accounting methods the ...

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