Question
For each of the following, indicate the accounting concept or constraint that has been violated, if any:
1) The company currently records its accounting transactions and prepares
its financial reports manually. The cost of using a new computerized
accounting system to do these tasks is estimated at $25,000.
Annual savings are expected to be $10,000.
2)Inventory is reported at cost when market value is higher.
3)Paper clips expense appears on the income statement, at $10.
4)Bad debt expense is recorded in the period when the account receivable is written off.
5)Small tools are recorded as long-lived assets and depreciated.
ANS:
1)Materiality constraint
2)cost benefit constraint
3)expense recognition criteria
4)matching principle
5)neutral
are these correct?
1) The company currently records its accounting transactions and prepares
its financial reports manually. The cost of using a new computerized
accounting system to do these tasks is estimated at $25,000.
Annual savings are expected to be $10,000.
2)Inventory is reported at cost when market value is higher.
3)Paper clips expense appears on the income statement, at $10.
4)Bad debt expense is recorded in the period when the account receivable is written off.
5)Small tools are recorded as long-lived assets and depreciated.
ANS:
1)Materiality constraint
2)cost benefit constraint
3)expense recognition criteria
4)matching principle
5)neutral
are these correct?