income statement

Jan 15 firm acquires merchandise cos2ng 40000 of which

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ure of economic sacrifices incurred to earn revenues. •  Cost of goods sold (COGS) => cost of the product being sold. •  Matching principle applies: firm can easily associate the asset expira2on with the revenue from selling the goods (firm recognizes sales revenue, and cost of goods sold becomes expense associated with revenue). •  A merchandising firm purchases inventory which is recorded as an ASSET on the balance sheet at acquisi2on cost. Later, when the firm sells the inventory, the same amount of acquisi2on cost appears as an expense (COGS) on the income statement. •  Selling, general, and administra2ve expenses (SG&A) => e.g., adver2sing, HR, IT expenses. •  Just like for revenues, expenses do not equal cash paid. 18 Recognize Expense? Sun Microsystems uses the accrual basis of accoun2ng and recognizes revenue at the 2me it sells goods or renders services. Indicate the amount of expenses (if any) the firm recognizes during the months of June, July, and August in each of the following transac2ons: a)  Pays rent of $180,000 on July 1 for one year’s rent on a warehouse beginning on that date. b)  Receives a u2lity bill on July 2 totaling $4,560 for services received during June. It pays the u2lity bill during July. c)  Purchases office supplies on account cos2ng $12,600 during July. It pays $5,500 for these purchases during July and the remainder during August. Office supplies on hand on July 1 cost $2,400, on July 31 cost $9,200, and on August 31 cost $2,900. d)  Pays $7,200 on July 15 for property taxes on office facili2es for the cur...
View Full Document

Ask a homework question - tutors are online