Question

The Matching Principle Three methods of matching costs with revenue were described in the chapter: (a) directly match a specific form of revenue with a cost incurred in generating that revenue, (b) indirectly match a cost with the periods during which it will provide benefits or revenue, and (c) immediately recognize a cost incurred as an expense because no future benefits are expected. For each of the following costs, indicate how it is normally recognized as expense by indicating either (a), (b), or (c). If you think that more than one answer is possible for any of the situations, explain why. 1. New office copier2. Monthly bill from the utility company for electricity3. Office supplies4. Biweekly payroll for office employees5. Commissions earned by salespeople6. Interest incurred on a six-month loan from the bank7. Cost of inventory sold during the current period8. Taxes owed on income earned during current period9. Cost of three-year insurance policy

Answer 1

Answer:

1. B

2. C

3. C

4. B

5. A

6. B

7. A

8. C

9. B

Explanation:

1. B

2. B/C This is Expense for the inflows of the current month but this will be treated as an expense and charged in the current month.

3. C

4. B

5. A

6. B

7. A

8. B/C This is also expense for the current month causing inflows in the month, but will be treated as an expense in the current month.

9. B