Option A depicts the „direct write-off method‟ which is a violation of the
matching principle. Option B is consistent with the matching principle.
Option C is not correct because the doubtful accounts expense is shown
as a separate expense on the income statement and not as a reduction
in revenue.
Financial Reporting And Analysis MCQ - Financial Reporting And Analysis Section 1
An expense recognition policy is considered conservative if expenses are
recognized sooner rather than later.
Period costs are reflected in the period when the company makes the
expenditure or incurs the liability.
The matching concept is followed for expense recognition, whereby
revenues and expenses are matched.
40
Which inventory costing method is likely to have the highest inventory in a period of rising prices?
The FIFO costing method is first in, first out. Therefore, the ending
inventory comprises of the latest items purchased which are likely to
have greater prices. In a period of rising prices, FIFO has the highest
ending inventory.
