Which of the Following Is True About the Cost Principle

question 86

Multiple Choice

Which of the following is true about the cost principle?

• A) It limits the economic data recorded in an accounting system to data related to the activities of that company.
• B) It initially records assets in the accounting records at their purchase price.
• C) It assumes that a company will continue in business indefinitely.
• D) It reports the revenues earned by a company for a period with the expenses incurred in generating the revenues.

Determine the investment turnover and understand its implications for business performance.

Calculate and interpret profit margin for divisions or companies.

Identify the responsibilities and performance measures of investment centers.

Apply concepts of residual income in evaluating business performance.

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Definitions:

Freight-In

The cost associated with transporting goods into a warehouse or to the purchaser, often added to the cost of the inventory.

Purchase Order

A business document and initial formal proposal provided by a purchaser to a vendor, specifying the kinds, amounts, and settled prices for goods or services.

Purchase Requisition

An official request form used within organizations to propose the purchase of specific goods or services.

Purchase Demand

The quantity of goods or services that consumers are willing and able to buy at a given price within a specific time period.