Ray Solutions decided to make the following changes in its accounting policies on January 1, 2024: a.
Question:
Ray Solutions decided to make the following changes in its accounting policies on January 1, 2024:
a. Changed from the cash to the accrual basis of accounting for recognizing revenue on its service contracts.
b. Adopted straight-line depreciation for all future equipment purchases, but continued to use accelerated depreciation for all equipment acquired before 2024.
c. Changed from the LIFO inventory method to the FIFO inventory method.
Required:
For each accounting change Ray undertook, indicate (a) the type of change and (b) whether Ray should report the change retrospectively or prospectively.
Step by Step Answer:
Change from cash basis to the accrual basis a Error correction The change from cash basis recognitio...View the full answer
Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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