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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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How does the expense recognition principle affect accounting for operating assets?

To determine

Recognition of expenses:

The expense recognition is done only when they are incurred. This is the principle of matching. This recognition principle is based on accrual accounting.

Operating Assets:

The assets which are used by the company for a long period for its own use for the purpose of generating profits but not held for sale in the ordinary course of business are known as operating assets.

The effect of expense recognition for accounting of operating assets.

Explanation

The operating assets are those which are intended to be used in the business for a long period and do not open for sale in the ordinary course of business. The expenses related to these assets like their purchase cost, installation cost, etc. which are part of cost and are meant to be capitalized are recognized when the benefits flow from these assets...

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