When Allocating Costs to Value Inventory, What Is the Underlying

question 17

Multiple Choice

When allocating costs to value inventory, what is the underlying reason why firms allocate rather than directly measure capacity costs?

• A)Traceability.
• B)Profitability.
• C)Responsibility.
• D)Reliability.
• E)None of the above.

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Definitions:

Accrual Basis

An accounting method that records revenues and expenses when they are earned or incurred, regardless of when cash transactions occur.

Accounting Principles

The standardized guidelines and rules followed by accountants to record, report, and summarize financial transactions, ensuring consistency and transparency.

Income Statement

A financial report that calculates a company's performance over a specific period, summarizing revenue, expenses, and profits.

Expense Recognition Principle

An accounting principle that dictates that expenses should be recognized in the period in which they contribute to the generation of revenue.