The net income gets affected by the accounting methods that have been chosen by the management.
Such as the depreciation and the inventory valuation methods.
For the depreciation methods, if the company decided to compute the depreciation expenses based on the straight-line method this means that the expenses have to be a steady constant in all the years of the assets useful life.
In this case, the net income will be the same during the useful life of the assets.
But when the company chose to use an accelerated method the depreciation expenses have to be more in the early years and lower in later years.
So the net income will be increased during the useful life of the assets.
Furthermore, inventory valuation methods affect net income.
What is clear for every accountant that is to find the COGS it is required to calculate it based on the formula ( Begging inventory + purchase inventory _ Ending inventory = COGS ).
We notice here that the COGS get affected by the value of the ending inventory if it is large the COGS will become less and if it is small the COGS become more.
The valuation of the ending inventory can be computed by selecting the accounting methods between FIFO or LIFO as well as the market situation if there are inflation or deflation.
And this leads to contributing a different net income.
Comments