Gaap and Ethics

Topics: Expense, Income statement, Depreciation Pages: 2 (466 words) Published: February 11, 2013
Wilson Blowhard has been successful with his communication company and is now looking into ways to continue improving his business. Being able to sell the business would set him up with the retirement he wants as long as profits are increasing. As long as there are increasing profits the net worth of the business will also increase, therefore allowing Mr. Blowhard to be able to sell his business for a higher price. He knows this can be a challenge but he also knows it is possible. Mr. Blowhard has found a way for his books to be beneficial to him so he has the option of retirement.

With normal operating expenses they are a loss to the company. With Wilson Blowhard’s communication business the company is being expensed a dollar for each line. When Mr. Blowhard decided to make use of the lines as an asset, it makes the business worth more. When there are more assets within a business the more net income a business will have. By having the lines as assets it also grows the net worth of the communication company.

Another way the company could adjust the records to make the company look better is to use double declining balance depreciation on the equipment within the plant. With this type of depreciation there is less depreciation each year the machinery is older, therefore not as much money is being deducted from the revenue. As long as the communication company keeps the same equipment it will show an increase in net income because of the depreciation amount decreasing. On the balance sheet this will also look as if the assets of the business are increasing each year. This looks good to gain the net worth of the business even though there really is not any change.

Mr. Blowhard could also use his expenses under capital expenditures. Capital expenditures actually extend the life of an item so it keeps the businesses assets higher(Edmonds, Olds, Mcnair & Tsay, 2012). For example if Mr. Blowhard spends $2,500 to repair equipment it would not...
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