Discussion questions Essay Example | Topics and Well Written Essays - 500 words - 9

Discussion questions - Essay Example Companies allow â€Å"good debtors† to make purchases without necessarily making the payment upfront. The money that the company expects to receive from the debtors after the agreed period is the trade receivable. Receivables are from frequent and ‘good’ customers who are periodically invoiced. An IOU is given to the company by the purchaser for services already rendered or goods already received (Warren, Reeve & Duchac, 2012). When the vice president of operations for Billings National Bank (Tricia Fenton) decided that the bank should use a 365-day year to compute interest on depository accounts (payables), she was being ethical. Therefore, the decision to use a 360-day year to compute interest on loans (receivables) was not professional. A financial year has 365 days; hence, all interests should be calculated based on that period. A 360-day year will reduce the receivables. When receivables reduce, it shows that the company is collecting its debts promptly. However, this is not the case. Tricia Fenton’s aim might be to impress her superiors while in the real sense; the company is facing challenges in collecting debts (Warren, Reeve & Duchac, 2012). Depreciation refers to the loss in asset value due to old age, wear and tear, obsolescence or adverse market conditions. It is crucial to note that land and buildings are the major assets that do not depreciate; instead, their value increases. Depreciation can be regarded as a non cash expense, which increases a company’s cash flow and reduces its reported earnings. For the purposes of financial reporting, businesses use different methods of depreciation. The depreciation method, which a company opts to use while calculating depreciation for all its depreciable assets, may differ from the one it uses for financial statement purposes and for the purposes of determining income taxes. This is due to the varying incentives in hand (Warren,