Chapter 2 - Other Function of expense method Focuses on the...

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Chapter 2 – Solutions 2-1 Entities may present their statement of profit and loss using the nature of expense method or the function of expense method. Discuss the value of each method. Nature of expense method: Focuses on the type of expense itself (i.e. payroll, depreciation, etc.) Arguably easier to prepare, especially if the accounting system is not set up by department May evaluate performance by type of expense
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Unformatted text preview: Other Function of expense method Focuses on the nature of the activity that the expense relates to (i.e. production, distribution, etc.) Presents the cost of sales and gross margin may evaluate performance May evaluate each activity separately if expenses are out of control in one activity (i.e. administration), may be more easily brought under control. Useful in predicting cash flows Other...
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