Chapter 7, Problem 1ANFS

Income reported for a business entity depends on the proper recognition of revenues and expenses. In certain cases, costs are recognised as expenses at the time of product sale and in other situations costs are capitalised if they bring future benefits.In around 250 words, comment on the above statement. Your comments should include valid examples and illustrations.

Which statements are correct? Statement 1: Financial statements must be prepared by a publicly-listed entity at least semiannually. Statement 2: An entity shall present the income statement more prominently. Statement 3: Revenues are income that arises from the ordinary course of business activities. Statement 4: Revenues may arise from decrease in liability from primary operations. Statement 5: Generally, revenue is recognized when the earning process is complete and a valid promise of payment has been received. Statement 6: Revenues arise from sale of goods or services, use of entity resources and disposal of noncurrent assets of the businesses. Statement 7: Under the transactions approach, net income is computed as the excess of income over expenses. Statement 8: Under the capital maintenance approach, net income is computed as the excess of ending capital over beginning capital, excluding the effect of investments and withdrawals by owners. Statement 9: Unusual and infrequent items…

Indicate if the following transaction from Torte Baking Company increases or decreases assets, liabilities, equity, revenue, expense, and net income. The pattern of the + and - must adhere to the balance sheet equation. Show the impact of revenue and expense on both net income and equity.  If there is a + and - within one category (e.g., assets for transaction 2), then list the accounts that go up and down. Transaction (26) Recognize tax expense that will be paid later.  Assets       ["", "", ""]  Liabilities       ["", "", ""]  Equity        ["", "", ""]  Revenue        ["", "", ""]  Expense        ["", "", ""]  Net Income        ["", "", ""]