Cost and Expense Flashcards
What is an expense?
It is a decrease in an asset or increase in a liability from delivery of goods or services as part of the firm’s primary business activities
What is a loss?
Decrease in net assets (A-L)
Result of incidental activities(excludes owners transaction) to operation
What is an asset?
Results in probable future economic benefit as a result of past transaction.
What are the three types of costs?
Expenses
Losses
Assets
All have debit balance
What are the two perspectives of recognizing asset or an expense?
Income Statement perspective - Matching principle (match revenue to expenses,recognize at the same time)
Balance sheet perspective - Meets definition of an asset
What is the treatment of R&D costs?
They are expensed.
What is the treatment of natural resources exploration costs?
They are expensed.
What is the treatment of advertising costs?
They are expensed as incurred.
Exception: Limited time informartials (direct response advertising cost). Some of their advertising cost can be capitalized.
What is the difference between GAAP and IFRS related to advertising costs?
US GAAP - Some direct response advertising costs can be capitalized.
IFRS - All advertising cost are expensed as incurred.
