Terri Chichester_Unit3_project

Terri Chichester_Unit3_project - 3 Some expenses are...

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Terri Chichester AC300 Professor Day Unit 3, chapter 2 C2-5 1. Explain the rationale for recognizing costs as expenses at the time of product sale. Costs are generally classified into two categories product cost and period costs. Product costs are labor, materials, and overhead these costs attach to the product. At the time of product sale the costs are recognized as expenses therefore matched to the revenue. In accrual accounting expenses incurred as a result of a product must be matched by the sale of that product. Expenses must follow revenue recognition. 2. What is the rationale underlying the appropriateness of treating costs as expenses of a period instead of assigning the costs to an asset? Explain. Some costs are called period costs these expenses are related to a period of time; examples of these are officer’s salaries and administrative costs. There is no direct relationship between the cost and revenue therefore they are immediately recognized.
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Unformatted text preview: 3. Some expenses are assigned to the specific accounting period on the basis of systematic and rational allocation of asset cost. Explain the underlying rationale for recognizing expenses on this basis. “Systematic and rational” allocation of asset cost include depreciation of property and equipment and amortization of intangibles. This policy is used for the costs that are hard to adopt some reasonable association with revenue so this allocation policy is used to approximate the matching principle. Most times this expense recognition pattern involves assumptions about the benefits received and the costs associated with those benefits, for example the long lived asset must be allocated over all of the accounting periods of its useful life because the asset contributes to the generation of revenue throughout its useful life....
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