Discussion questions - Essay Example

Financial Accounting Discussion Questions Payables: When a bank receives a loan from other financial s, the money borrowed is in financial terms referred to as payables. A banking institution may be obliged to seek financial assistance from other banks or even from the government because liquidity is the backbone of all operations within a bank. Therefore, in order for the institution to keep its desired liquidity level, it requires plenty of cash, hence borrowing (Warren, Reeve & Duchac, 2012).

Receivables:Receivable is a financial term used to describe money owed to the company by its debtors. This may result from sales that the company makes to its customers on credit terms. Companies allow “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).#2Depreciation 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, Reeve & Duchac, 2012).For instance, a profitable organization will most obviously desire to reduce its income tax. For this reason, the management will go for accounting options that will lower the net income, consequently reducing payments of tax.

The accounting options that minimize taxable income may include LIFO instead of FIFO and accelerated depreciation in lieu of straight line. For financial reporting in general, management may desire to portray a firm’s profitability in a more realistic manner in place of portraying the minimal net income, which is the legal amount. Therefore, the accounting choices made for the purposes of financial reporting in general are not necessarily used for the tax purposes (Warren, Reeve & Duchac, 2012).

For depreciable assets, businesses may opt to use different methods for computing depreciation. For instance, an organization may opt to use a straight line depreciation method on motor vehicles, reducing balance method on computers and diminishing value method on loose tools. This is because different assets have different values and their usage also differs significantly (Warren, Reeve & Duchac, 2012). ReferencesWarren, C. S., Reeve, J. M., & Duchac, J. E. (2012). Financial accounting. (12th ed.). Mason, OH: South-Western Cengage Learning.