Question.3909 - In Chapter 5, 6 and 7, we discussed three different asset accounts/categories in more depth. Thinking about how we record transactions for each, what commonalities across them can you identify. If you are having a hard time with this maybe think about the following concepts: Allowance for Doubtful Accounts Recording Inventory at the Lower of Cost or Market (LCM) Impairment of Long-term Assets
Answer Below:
In Chapters 5, 6, and 7, Accounts Receivable, Inventory, and Long-term Assets have similar ways of recording transactions to keep their values accurate. For example, we estimate bad debts for money owed by customers, adjust inventory to be valued at the lower of what it cost or what it’s worth now, and reduce the value of long-term assets if they lose value. These adjustments ensure the assets aren’t valued too high and reflect real-world changes. By recognizing potential losses early, like bad debts, drops in inventory value, or asset declines, this careful approach lowers net income by recording these losses as expenses right away.More Articles From Accounting
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