Booster your BIz

When companies choose between accounting methods, some choices affect cash flows because the same accounting method must be used for both financial reporting and tax reporting. Inventory methods fall into this group; a company must use the same inventory method for both financial and tax reporting. Last-in, first-out (LIFO) and first-in, first-out
(FIFO) affect both reported earnings and cash flows for taxes.These two methods are used to illustrate the effect of such accounting methods on the quality of earnings. Continue reading…

Companies choose among alternative accounting methods. When a company chooses an accounting method because it maximizes reported earnings, investors view the resulting reported earnings as lower quality.Studies have shown, for instance, that investors see a company that chooses to use straight-line depreciation as having lower-quality earnings
than a company that uses an accelerated method.1 Continue reading…