Question - Answer the following Scenario, 1 to 2 paragraphs as needed: Thank you.
Scenario:
You hired as the new the General Ledger accountant for a Angoco Trucking Company. While reviewing the fixed assets ledger you noticed the schedule of fixed assets with the long list of trucks showing cost, salvage value and the accumulated depreciation.
Your fixed asset clerk is your boss niece, Tanya and she has worked for the company for almost five years. As such, she was hired for his family connection and not for his proficiency with accounting for fixed assets. The company uses straight line method of depreciation. In the process of your review, you noticed that Tanya uses the straight line method from January - June of the year and she changes the method to double decling method from July- December. She is not aware of the matching and consistency principle of accounting.
Question 1: Using the matching principle as your guide, explain to Tanya what depreciation is and how it works?
Question 2: What is the effect on your financial statements (income statements and balance sheet) of the change in accounting methods of depreciation?