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Unformatted text preview: C2-5 Cost and Expense Recognition(AICPA Adapted) An accountant must be familiarwith the concepts involved in determining earnings of acompany. The amount of earnings reported for a company isdependent on the proper recognition, in general, of revenueand expense for a given time period. In some situations costsare recognized as expenses at the time of product sale; inother situations guidelines have been developed for recognizingcosts as expenses or losses by other criteria.Required1. Explain the rationale for recognizing costs as expenses atthe time of product sale.2. What is the rationale underlying the appropriateness oftreating costs as expenses of a period instead of assigningthe costs to an asset? Explain.3. Some expenses are assigned to specific accounting periodson the basis of systematic and rational allocation ofasset cost. Explain the underlying rationale for recognizingexpenses on this basis.C2-5 Cost and Expense RecognitionName:Pamela BatesAn asterisk (*) will appear next to an incorrect amount(s) in the outlined cell(s). If you are still gettinga red asterisk, and think the answer is correct, but used a formula in the cell try manually typingin the answer according to the rounding instructions.Required1. Explain the rationale for recognizing costs as expenses at the time of product sale.first you must select a time period then match the cost againstthe expense. In the accural vs cash basis, one company will record transactions as it happens. For example, manufactureorders supply parts. While another company records the transaction when they receive cash. For example, when youpay cash for coffee at the local gas station. In the revenuerecognition principle, a company records the transaction when...
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- Spring '11