The Distinction Between Recognition and Realization Is Essential to Accrual

question 60

Multiple Choice

The distinction between recognition and realization is essential to accrual accounting, hence the importance accorded to recognition criteria.Firms recognize items that qualify for inclusion in the financial statements when they enter the financial statements. In the case of value decreases, the firm

• A)recognizes the decreases as impairment expenses when it realizes the collection of the reduced cash flows.
• B)recognizes the decreases as cost of goods sold when the decreases occur before it realizes the collection of the reduced cash flows.
• C)recognizes the decreases as impairment expenses when the decreases occur before it realizes the collection of the reduced cash flows.
• D)recognizes the decreases as cost of goods sold when it realizes the collection of the reduced cash flows.
• E)None of these answer choices is correct.

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Definitions:

Bank Statement

A document provided by a bank detailing the transactions in a depositor's account over a specific period.

Service Charge

A fee collected for the benefit of providing a service, often added to bills in restaurants, banking, and hospitality.

Check Register

A record of checks written, deposits made, and balances in a checking account, used to track finances.

Bank Statement

A document provided by a bank which outlines all transactions in an account, including deposits, withdrawals, and fees, over a specified period.