An entity with total aside t, of US $100, 000, 000 and profit of US purchases staplers with an estimated life of 10 years for US $1, 000. In connection with the purchase, the company debits miscellaneous expense. This scenario is most closely associated with which of the following cone opts or principles?
Answer(s): D
In principle, wasting assets should be capitalized and depreciated. However, the effect on the financial statements of expensing rather than capitalizing and depreciating the staplers is clearly not material given that they cost US $1, 000 and the enterprise has total assets of US $1, 000. The choice of treatment is not likely to influence the decisions of financial statement users. The balance between benefit and cost is a pervasive constraint, not a qualitative characteristic. The benefits should exceed the cost of information. Specifically, the cost of producing the information about depreciation expense over 10 years for the staplers probably is higher than the benefits of the information for decision making. Thus, the expedient procedure of expensing the US $1, 000 should be followed.
To comply with the matching principle, the cost of labor services of an employee who participates in the manufacturing of a product normally should be charged to the income statement in the period in which the
Recognition of expenses occurs concurrently with recognition of increases in liabilities or decreases in assets. Expenses are recognized if the costs are directly associated with the earning of particular income items. This process is often called matching Matching is simultaneous or combined recognition of the revenues and that result directly and jointly from the same transactions or other events. This direct relationship is exemplified by the sale of a product. This transaction results in revenuesales revenue) for receipt of cash or a receivable, the recognition of an expensecost of sales) for the sacrifice of the product to a customer, and a decrease in inventory. The direct labor cost of manufacturing the product is absorbed by the finished goods inventory and is not recognized until sale.
In recording transactions, which of the following best describes the relation between expenses and losses?
Answer(s): C
Expenses are defined as "decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants." Expenses include losses. Thus, losses are not treated as separate elements. Expenses include items arising in the course of ordinary activities. Losses meet the definition of expenses but may or may not occur in the course of ordinary activities. For example, losses may result from the sale of noncurrent assets or from natural disasters.
Which of the following is a noncash item?
Expenses are defined as decreases in economic benefits during the accounting period in the forum of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants." Expense includes losses. Thus, losses are not treated as separate elements. Expenses include items arising in the course of ordinary activities. Losses meet the definition of expenses but may or may not occur in the course of ordinary activities. For example, losses may result from the sale of noncurrent assets of from natural disasters.
A service entity keeps its accounting records on a cash basis. During the recent year. the entity collected US $600, 000 from customers. The following information is also available:What was the amount of service revenue for the year on an accrual basis?
The amount of service revenue for the year on an accrual basis equals US $645, 000$600, 000 cash collected - $15, 000 unearned revenue + $60, 000 increase in accounts receivable).
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