Question

Expense Matching Identify the proper point to recognize expense for each of the following transactions.

a. Katharina Inc. purchases on credit six custom sofas for $800 each in June. Two of the sofas are sold for $1,200 each in June. One of the sofas is sold for $1,000 in July and the remaining three sofas are sold for $1,500 each in August. All sales are for cash. Katharina pays its supplier in July.

b. Kuyu Co. purchases $500 of supplies in January. Half the supplies are used in January with the remaining half used in February.

c. Jane Co. purchases $1,000 of inventory for cash in September. The entire inventory is sold in November.

Answer 1

A)Expense should be recognised in the period in which it is incurred (expense in relation to such revenue incurred),irrespective whether cash is received or not

In the given case,expense should be recognised/expensed in the month of sale (when sale is made and revenue is earned)

Therefore ,cost of sale should be recognised/expensed as :

June	2*800= 1600
July	1*800=800
August	3*800=2400

b)Expense should be recognised in the period in which it is incurred (irrespective of date of purchase or date of payment)

In the given case ,supplies expense should be recorded/expensed in the period it is used .

Therefore cost of supplies /supplies expense should be recorded/expensed as:

Jan	500*1/2=250
Feb	250

c)Expense should be recognised in the period in which it is incurred (irrespective of date of purchase or date of payment)

in the given case , cost of sales should be recorded in the month of sale (irrespective of month of purchase or month of payment ).

Therefore $ 1000 should be expense in the month of november