The recognition of an expense usually occurs based on one of the following three intrinsic principles: | |||
(a) | Associating cause and effect | ||
(b) | Systematic and rational allocation | ||
(c) | Immediate recognition | ||
Evaluate the following items and determine the intrinsic principle that establishes the basis by which it is to be recorded as an expense. | |||
(1) | The cost of a building used in the business. | ||
(2) | The cost of merchandise sold to customers. | ||
(3) | Rental costs under a three-year lease agreement. | ||
(4) | The cost of a rebate offered on goods sold to customers. | ||
(5) | An uninsured storm loss. | ||
(6) | Commissions paid to a sales person. | ||
(7) | Cost of land seized as the result of a change in government in a foreign venue. | ||
(8) | The cost of paper used by a publishing company. | ||
(9) | The cost of an unfavorable verdict in a civil lawsuit. |
Associating cause and effect | |||
(2) | The cost of merchandise sold to customers. | ||
Systematic and rational allocation | |||
Immediate recognition | |||
Expert Answer
Associating cause and effect:
2 | The cost of merchandise sold to customers |
4 | The cost of rebate offred on goods sold to customers |
6 | Commissions paid to sales persons |
8 | The cost of paper used by a publishing company |
Systematic and rational allocation
1 | The cost of building used in business |
3 | Rental costs under a 3 year lease agreement |
Immediate recognition
5 | An uninsured storm loss |
7 | Cost of land seized as a result of change in government in a foreign venue |
9 | The cost of an unfavourable verdict in a civil law suit |