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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Expense Recognition

The FASB states that expenses are recognized according to three principles to properly recognize expenses.

Required:

Write a concise report that identities the three principles, briefly explains each, and provides examples of expenses that would be recognized under each principle.

To determine

Write a report that identifies three principles and examples of expenses that would be recognized under each principle.

Explanation

Expenses:

Expenses are costs incurred for the operations of a business. The costs incurred for generating revenues are rent expense, depreciation expense, general and administrative expenses, selling expenses, and utilities expense.

Three principles which are used to determine the recognition of expenses:

  • Association of cause and effect.
  • Systematic and rational allocation.
  • Immediate recognition.

Association of cause and effect: In this various costs are recognized as an expense on the nature of a direct association with particular revenues. Some of the examples are as follows:

  • Cost of goods sold.
  • Transportation cost for delivering the goods that are sold to customers...

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