Damian, a Recent College Graduate with a Degree in Accounting

question 334

Multiple Choice

Damian, a recent college graduate with a degree in accounting, is helping a newly formed construction company set up its accounting system. Although the company had purchased accounting software, Damian wants to make certain that future reports will distinguish between current liabilities and long-term liabilities. In the future, he will need to know the amount of total current liabilities in order to

• A) know when it is time to make a long-term mortgage payment.
• B) calculate if the company has purchased too much inventory for home building.
• C) analyze whether the company can afford to make capital purchases such as additional land acquisition.
• D) analyze whether the company has enough funds to pay the near-term bills.

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Definitions:

Installment Sales Contracts

Contracts in which the buyer agrees to pay the purchase price of an asset in several periodic payments.

Revenue Recognition

The principle that dictates the specific conditions under which revenue can be recognized by an entity in its financial statements.

Revenue Recognition

This is an accounting principle that dictates the specific conditions under which income becomes recognized as revenue.

Indirect Costs

Expenses not directly tied to a specific project, product, or service but necessary for the general operation of an organization, such as utilities, rent, and administrative salaries.