Some Companies Choose to Avoid Assigning Incidental Costs of Acquiring

question 163

Multiple Choice

Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as cost of goods sold when incurred.The principle that supports this is called:

• A)The expense recognition principle.
• B)The materiality constraint.
• C)The cost principle.
• D)The conservation constraint principle.
• E)The lower of cost or market principle.

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Definitions:

Statement of Cash Flows

A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, dividing activities into operating, investing, and financing.

Retained Earnings Statement

A summary of the changes in the retained earnings in a corporation for a specific period of time, such as a month or a year.

Fair Value

The estimated market value of an asset or liability, based on current prices in an active market.

Financial Statements

Official records that outline the financial activities and condition of a business, individual, or other entity.