When a Direct Cause-And-Effect Relationship Cannot Be Established Between Revenues

question 27

Multiple Choice

When a direct cause-and-effect relationship cannot be established between revenues and costs,the costs are

• A)not expensed and remain as assets on the balance sheet.
• B)expensed among the accounting periods that benefit from the costs.
• C)expensed immediately in their entirety.
• D)expensed equally each year.

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Definitions:

Substitution Effect

The economic principle that as prices rise or income decreases, consumers will replace more expensive items with less costly alternatives.

Income Effect

The impact of a change in an individual's income on their purchasing behavior, specifically how it affects the quantity of goods or services they buy.

Warren Buffet

A highly successful investor and philanthropist known for his value investing approach and as the principal shareholder and CEO of Berkshire Hathaway.

Purchase Commodities

The act of buying raw materials or primary agricultural products that can be exchanged with other goods of the same type.