Financial Reporting And Analysis - Financial Reporting And Analysis Section 1
- Option : B
- Explanation : 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.
37. An expense recognition policy can be considered conservative if:
- Option : A
- Explanation : An expense recognition policy is considered conservative if expenses are recognized sooner rather than later.
38. Period costs are reflected in the period:
- Option : C
- Explanation : Period costs are reflected in the period when the company makes the expenditure or incurs the liability.
39. Which of the following principles is followed for expense recognition?
- Option : B
- Explanation : The matching concept is followed for expense recognition, whereby revenues and expenses are matched.
- Option : A
- Explanation : 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.
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