BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
where on the income statement expenses should be present
|
|
|
when costs are recognized as expenses on the income statement
|
|
|
the ordering of current assets and current liabilities on the balance sheet
|
|
|
how costs are allocated between Cost of Sales (sometimes called Cost of Goods Sold) and general and administrative expenses
|
Detailed explanation-1: -The expense recognition principle is a concept that outlines when a business’s expenses are recognized in the company’s financials. Typically, the expense recognition principle involves expenses being recognized and recorded in the same period as the revenues associated with those expenses (under accrual accounting).
Detailed explanation-2: -If a cause-and-effect relationship does not exist between a company’s revenues and its costs, and there is no future economic benefit which can be measured, the costs should be recognized/reported immediately as expenses on the current income statement.
Detailed explanation-3: -Essentially, the revenue recognition principle means that companies’ revenues are recognized when the service or product is considered delivered to the customer-not when the cash is received. Determining what constitutes a transaction can require more time and analysis than one might expect.
Detailed explanation-4: -Expense recognition, also known as the matching principle, occurs when a company incurs expenses and it recognizes the revenue associated with the expenses. A company shouldn’t record expenses when they receive payment, but at the time they collect revenue.
Detailed explanation-5: -Matching principle is an accounting principle for recording revenues and expenses. It requires that a business records expenses alongside revenues earned. Ideally, they both fall within the same period of time for the clearest tracking. This principle recognizes that businesses must incur expenses to earn revenues.