Topically Biles Works For Coast Resort Co Sh

200 Wordsdiscussion Topically Biles Works For Coast Resort Co She An

Ally Biles works for Coast Resort Co., and she is responsible for preparing adjusting entries for the company's annual financial statements. Biles computes depreciation on equipment as $123,000 and records it by debiting Depreciation Expense – Equipment and crediting Accumulated Depreciation – Equipment for the same amount. Her approach aligns with standard accounting practices that utilize a contra asset account to accumulate depreciation. Her manager, Paul Smith, agrees with her calculation but suggests recording depreciation by directly crediting the Equipment account, thereby eliminating the contra account. Smith argues that this method simplifies the process, reduces hassle, and yields the same total asset value on the balance sheet, claiming that both methods produce identical total assets.

However, the proper accounting treatment should favor Biles’ method, which involves recording depreciation through a contra asset account. This approach separates the original cost of the equipment from the accumulated depreciation, providing clearer financial information. Contra accounts enhance transparency, enabling users to distinguish between asset acquisition costs and depreciation expenses. Directly crediting the Equipment account erases this distinction, obscuring the true valuation of assets and potentially misleading stakeholders.

While Smith's reasoning emphasizes convenience, it overlooks the importance of accuracy and compliance with accounting standards. Maintaining a contra asset account aligns with Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), supporting consistent financial reporting. The contra account method also facilitates tracking accumulated depreciation separately from the asset's book value, aiding in asset management and impairment assessments. Therefore, Ally Biles' approach is better suited for accurate, transparent financial reporting, essential for stakeholders' informed decision-making.

Paper For Above instruction

Depreciation is a fundamental accounting concept that involves allocating the cost of a long-term tangible asset over its useful life. Proper recording of depreciation ensures that a company's financial statements accurately reflect the reduction in the value of assets due to wear and tear, obsolescence, or aging. The selected method for recording depreciation significantly impacts the clarity and transparency of financial reports.

The standard approach endorsed by accounting principles involves debiting a depreciation expense account and crediting a contra asset account called accumulated depreciation. This method distinctly separates depreciation costs from the original cost of the asset, allowing stakeholders to see both the gross value and accumulated depreciation clearly. This separation helps users assess the condition of assets and evaluate the company's depreciation policies.

In contrast, some managers, like Paul Smith, advocate for directly crediting the Equipment account, eliminating the accumulated depreciation. Although this method may seem to reduce the complexity and streamline the accounting entries, it can compromise the clarity of financial data. Without a separate accumulated depreciation account, it becomes challenging to determine the actual book value of assets and to analyze depreciation trends over time.

From an ethical and compliance perspective, Biles’ approach aligns better with GAAP and IFRS standards, which require the use of contra asset accounts. These standards aim to enhance transparency and promote comparability across financial statements. Contra accounts facilitate more detailed reporting, enabling investors, auditors, and regulators to make better-informed decisions based on clear asset valuations.

While Smith's rationale focuses on simplicity and perceived convenience, it overlooks the long-term benefits of accurate asset tracking and regulatory compliance. The added complexity of maintaining a contra account is justified by the increased accuracy and usefulness of financial information. Companies that adopt the contra account method improve their financial reporting quality, strengthen stakeholder trust, and ensure adherence to accepted accounting frameworks.

In conclusion, Ally Biles’ preferred method of recording depreciation through a contra asset account should be maintained. Its benefits in providing transparent and compliant financial reports outweigh the simplicity offered by Smith's alternative. Accurate depreciation recording ultimately supports sound financial management and enhances the credibility of a company’s reported financial health.

References

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