A Company's Accountant Capitalized a Payment That Should Have Been

question 102

Multiple Choice

A company's accountant capitalized a payment that should have been recorded as a revenue expenditure.How will this error affect the company's financial statements?

• A) Net income will be understated.
• B) Expenses will be overstated.
• C) Assets will be overstated.
• D) Liabilities will be overstated.

Recognize the critical issues in distinguishing between sales and collateralized borrowings using receivables.

Comprehend the effects of mishandling the accounting of receivable transfers and its implications on financial ratios and statements.

Understand the general principles of accounting for accounts receivable under both IFRS and U.S. GAAP.

Calculate and analyze accounts receivable balances, including the allowance for uncollectible accounts.

---

Definitions:

Predetermined Overhead Rate

A rate calculated at the beginning of a period, used to apply manufacturing overhead costs to products based on a chosen activity base such as machine-hours or labor-hours.

Variable Component

Variable Component refers to the part of total costs or expenses that changes in proportion to changes in the volume of activity or production levels.

Fixed Component

In cost accounting, this refers to costs that do not change with the level of production or sales, such as rent and salaries.

Variable Overhead Efficiency

Variable overhead efficiency refers to the effectiveness with which a company manages its variable manufacturing overhead costs in relation to its production activities.