These questions are in response to chapter 3, of Intermediate Accounting, Adjusting entries.
Suppose we were to change asset depreciation on buildings and the furniture and equipment from 5% and 10% to 4% and 8%, respectively. What would be the effect on net income? Would it increase or decrease? Likewise, suppose our estimate of the balance in Allowance for Bad Debts was reduced from $1,100 to $ 1,000. What would be the effect on net income?
Is the adjusting entry process an exact science by which accountants can determine exactly how well a company has done for a period? Or is accounting an art that requires significant judgment on the part of the accountant? What are four types of adjusting entries? How are they similar and how do they differ?
What are the dangers for the accountant when making an estimate in an area (like bad debts) where significant judgment is required?