Accounting 25th Edition by Carl Warren, James Reeve, Jonathan Duchac

Exercise 2

Financial vs. tax depreciation
The following is an excerpt from a conversation between two employees of WXT Technologies, Nolan Sears and Stacy Mays. Nolan is the accounts payable clerk, and Stacy is the cashier.
Nolan: Stacy, could I get your opinion on something
Stacy: Sure, Nolan.
Nolan: Do you know Rita, the fixed assets clerk
Stacy: I know who she is, but I don't know her real well. Why
Nolan: Well, I was talking to her at lunch last Monday about how she liked her job, etc. You know, the usual … and she mentioned something about having to keep two sets of books … one for taxes and one for the financial statements. That can't be good accounting, can it What do you think
Stacy: Two sets of books It doesn't sound right.
Nolan: It doesn't seem right to me either. I was always taught that you had to use generally accepted accounting principles. How can there be two sets of books What can be the difference between the two
How would you respond to Nolan and Stacy if you were Rita