Week three was highlighted by the discussion of fixed assets and the use of accounting for depreciation of those assets. Businesses utilize depreciation of their fixed assets to take advantage of the tax breaks that they receive. The cost of depreciation of assets lowers the taxable income of a company and in turn allows either a higher refund or less owed in taxes. Another option that is available is the use of accelerated depreciation. This option allows for companies to accelerate the depreciation of assets to a current year's return to gain a higher tax break. The use of this tool is usually implemented in times of economic turmoil to stimulate the economy.
Inventory is one of the most prominent items on the balance sheet. The inventory position shows how methodical management is with stockholder assets and how certain they are in the businesses' forthcoming sales. In the majority of circumstances the inventory would be summarized at its expense; nevertheless, inventory could be decreased lower than cost when there is confirmation that the assessment of the merchandise, when marketed, would be below the cost. This may develop on account of extinction, decline, or relevant price adjustments. The purpose for why inventory is palpable to an income statement is that inventory figures are utilized in the calculation of the cost acquired to execute the commodities exchanged throughout the duration.
Inventory valuation is important to the presentation of both the balance sheet and the income statement because its impact extends beyond just its total value. Not only is the value of the inventory represented as a current asset on the balance sheet, but also the value of the goods sold are shown as an expense on the income statement. Therefore, it is extremely important that the valuation method chosen for inventory is appropriate, of which there are three main methods: LIFO, FIFO, and AVCO. If inventory is not