ACCOUNTING METHODS 1

Accounting Methods

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Accounting Methods

The different natural resource companies in areas such as gas and oil have their strategies in ensuring their relevance in the market through management sales, actual sales, sales or leases and the actual sales of properties (Henderson, Peirson, & Herbohn, 2013). Several accounting options are available for the US oil and gas companies, though the Successful Effort and Full Cost methods are relevant. The difference between the two methods relates to the treatment of the operating expenses, which deal with the exploration of the oil and natural gas reserves. The accounting method that suits the companies interferes with the cash flow and the net income. Therefore, it is imperative to choose an accounting method that works better in the development and exploration of the oil and natural gas companies (Henderson, Peirson, & Herbohn, 2013).

The method that suits the companies in the United States is the Successful Method otherwise known as the SE, which would allow the companies to capitalise on the expenses that successfully locate the natural gas and oil reserve (Henderson, Peirson, & Herbohn, 2013). At the same time, in an event of a dry hole or unsuccessful result, the operating costs would be charged against the revenues associated with the period. The exploration costs capitalised within the method is recorded on the balance sheet as part of the long-term assets. The SE method makes it easy to achieve transparency associated with the company’s accounting of its cash flow and earnings (Henderson, Peirson, & Herbohn, 2013). The perception applied by SE method is that the oil and gas companies would produce the resources from the reserves whereby it develops and locates the costs related to the successful efforts that need to be capitalised. Nevertheless, the concept also helps in identifying the changes in productive assets whereby the unsuccessful result and cost incurred would be expensed.

References

Henderson, S., Peirson, G., & Herbohn, K., (2013). Contemporary issues in accounting. Frenchs Forest, NSW Pearson Australia [for the] University of South Australia