Question

can i have an example of "Expense Recognition"? and explanation?

Answer 1

The principle of expense recognition states that all expenses should be recognised in the season as the revenue they relate to. This is the act of converting an asset into an expense. This is generally done when the utility of an asset has been consumed. It can arise on delayed basis when the expenditure made for an asset are not consumed immediately. It can also take place as soon as the expenditures made. This can arrive when the utility of an asset is consumed in the period when expenditure is made.

For example a business made a expense of $100,000 and sells it in the following month for $150,000. The $100,000 cost should not be recorded as expense untill the following month or else expenses will be overstated in the current month and understated in the following month.