Question

A company should expense an expenditure if: A. It is paid for with cash B. The...

A company should expense an expenditure if:

A. It is paid for with cash

B. The benefit of the expenditure is used up over multiple accounting periods

C. The benefit of the expenditure is used up within the accounting period

D. If it results in a credit to Accounts Payable

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Answer #1

C. The benefit of the expenditure is used up within the accounting period.

As per matching principle the entity has to expense off its expenditure in period in which revenues are earned to arrive at profit earned during the same period. When the benefit of the expenditure is used up within the accounting period, the entire expense is charged to income statement of that particular accounting period.

When benefit of the expenditure is used up over multiple accounting periods, such an expense is spread over accounting periods as per benefit in each accounting year and not expensed off in single accounting year.

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