(This is a question from a Financial Accounting course, I need help answering. T

Question

(This is a question from a Financial Accounting course, I need help answering. Thank you.) Throughout the course, documentation for recording business transactions is the general rule under the historical cost principle. There are principles and rules in accounting governing depreciation and amortization applications, but there is plenty of room for management to be creative in applying these rules. Discuss the different decisions and assumptions management can make regarding depreciation/amortization applications and how each will affect financial statements. Is there potential for fraud or misleading the users of financial statements?

Explanation / Answer

The prime assumptions about depreciation/amortization are left to the company's managementhas been described below-

It can effect income statement and balance sheet significantly.It can shift expenses in different years consequently profit/loss as well.

Well,it can be used to prepare misleading financial statements and leaves room for fraud as well.

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