Guidelines For Expenses Recognition

Guidelines For Expenses Recognition Assignment Help | Guidelines For Expenses Recognition Homework Help

Guidelines For Expenses Recognition

It is rather simple to determine expenses for an accounting period. The matching principle requires that the expenses must be properly associated with revenues. In practice, the methods of associating expenses with revenues may be described as:
(1)    Direct identification of expenses with revenues.
(2)    Identification with the accounting period.

Direct identification of expenses with revenues:

Some elements of expenses can be readily identified or associated with specific revenues. For example, the cost of goods sold may be identified directly with the revenues from the goods sold. Similarly commission paid to salesmen, carriage outward expenses and so on are easily related to the sales revenues. It is easy to match revenues and related expenses in there cases.

Identification with the accounting period:

Expenses that cannot be easily and clearly associated with particular revenues re identified with specific time periods.

The accountants have formulated certain practices to deal with such cases with the result that expenses which cannot related with particular revenues are associated with same or different accounting periods depending upon the nature of the expenses. The reasons are: (
(a) Need for objectivity.
(b) Relation to passage of time.
(c) Convenience.

Need for objectivity:

Generally amount spent on any item which has future usefulness should be charged to an asset account. But in some cases, though future usefulness is possible or even expected, it is not possible to prove its existence or measurement. The expenditure on the advertisement is a typical example. The impact of advertising campaign may be felt in the form of increased sales in more than one accounting period. Theoretically, therefore, this expenditure is an asset. But there is no way to prove or measure this asset. Accounting must be free form bias. The expenditure on advertising campaign is treated as an expense in the accounting period in which it is incurred. The only exception is in those cases where the amount involved is very large and there is some standardized procedure of allocation of this expenditure over more than one accounting period.

Relation to passage of time:

It would be found that some expenses that some expenses such as salaries, stationery, etc., are directly related to the passage of time. For example salaries are generally paid to the month end, and items of stationery are used up in the period of issue. These items and others like them are recorded in the period in which material is used or the service is performed.

Convenience:

Some items are related to accounting rather than particular revenues purely on considerations of convenience. The typical example is the various items of stationery which are immediately charged to expenses accounts even though they are not used at once. Again, the costs incurred to purchase goods such as cartage, duties, rent of the warehouse etc. should be associated with the goods purchased and become expenses only when the cost of the goods goes in cost of goods sold. It should be obvious that such a procedure would be complicated and would also create some uncertainties. Thus the cost incurred on purchases is recognized as an expense of the period in which it is incurred.

For more help in Guidelines For Expenses Recognition click the button below to submit your homework assignment