If a company such as IBM includes other gains and losses in its sales, general and...

If a company such as IBM includes other gains and losses in its sales, general and administrative expenses, w

A)	the investors may be confused and will not know the true sales, general and administrative expenses.

B)	it is classifying them correctly when it comes to reporting clarity.

C)	it would violate US GAAP.

D)	it would violate AICPA guidelines.

Expert Solution

A) the investors may be confused and will not know the true sales, general and administrative expenses.

Explanation:

It is imporatant to determine the nature and type of item i.e. expenditure or income before its classification in its respective account. Any income or expense may be direct or indirect in nature if it is directly related to the production it should be classified along with the cost of goods sold otherwise if it is not directly related it should be classified along with its respective indirect income or expense head.

If any other incomes or losses are included in sales, general and administrative expenses it will not lead to true and fair view of books of accounts and it will mislead the investors. Because it is not reflect the actual account of sales, general and administrative expenses. other expenses or gains may be due to any non recurring event also like sale of machine, loss on sale of plant. So it should be classified according to its respective nature and headsand reflected in notes to account in detail manner.

ekkarill92 answered 1 year ago

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