Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 2: Question 10Q (page 61)

Expenses, losses, and distributions to owners are all decreases in net assets. What are the distinctions among them?

Short Answer

Expert verified

Expenses differ from losses as they arise from the day-to-day activities of the business. On the other hand, losses arise from peripheral and accidental transactions.

Distributions to owners differ from the expenses and losses as it refers to the transfer made to owners; they do not result from the activities done to generate income.

Step by step solution

01

Definition of Net Assets

Net assets are the value of a company's assets obtained by subtracting the firm's liabilities from its assets. It helps in analyzing the assets of the company at a certain point in time.

02

Difference between expenses, losses, and distribution to owners

Expenses are the cost incurred in the process of manufacturing goods and services. It arises from the ongoing operations of the business. Examples of expenses include productive wages, freight inward, cartage, or carriage inward.

While losses are referred to as non-operating expenses, they arise from incidental transactions. Examples of losses include loss of stock due to accident, theft, or fire.

On the other hand, distribution to owners differs from the expenses and losses as distribution or sharing to owners refers to the transfer to stockholders or owners. They do not result from any activity; it is the payment of retained earnings of a firm made to its owners. Examples include payment of cash, stock, or physical product to its shareholders.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What is a conceptual framework? Why is a conceptual framework necessary in financial accounting?

Selane Eatery operates a catering service specializing in business luncheons for large corporations. Selane requires customers to place their orders 2 weeks in advance of the scheduled events. Selane bills its customers on the tenth day of the month following the date of service and requires that payment be made within 30 days of the billing date. Conceptually, when should Selane recognize revenue related to its catering service

Question: The AICPA Special Committee on Financial Reporting proposed the following constraints related to financial reporting.

  1. Business reporting should exclude information outside of management’s expertise or for which management is not the best source, such as information about competitors.

  2. Management should not be required to report information that would significantly harm the company’s competitive position.

  3. Management should not be required to provide forecasted financial statements. Rather, management should provide information that helps users forecast themselves the company’s financial future.

  4. Other than for financial statements, management need report only the information it knows. That is, management should be under no obligation to gather information it does not have, or does not need, to manage the business.

  5. Companies should present certain elements of business reporting only if users and management agree they should be reported- a concept of flexible reporting.

  6. Companies should not have to report forward-looking information unless there are effective deterrents to unwarranted litigation that discourages companies from doing so.

Instructions

For each item, briefly discuss how the proposed constraint addresses concerns about the costs and benefits of financial reporting.

In January 2018, Jane way Inc. doubled the amount of its outstanding stock by selling on the market an additional 10,000 shares to finance an expansion of the business. You propose that this information be shown by a footnote on the balance sheet as of December 31, 2017. The president objects, claiming that this sale took place after December 31, 2017, and therefore should not be shown. Explain your position.

CA2-7 (Expense Recognition Principle) Accountants try to prepare income statements that are as accurate as possible. A basic requirement in preparing accurate income statements is to record costs and revenues properly. Proper recognition of costs and revenues requires that costs resulting from typical business operations be recognized in the period in which they expired.

Instructions

(a) List three criteria that can be used to determine whether such costs should appear as charges in the income statement for the current period

.(b) As generally presented in financial statements, the following items or procedures have been criticized as improperly recognizing costs. Briefly discuss each Item from the viewpoint of matching costs with revenues and suggest corrective or alternative means of presenting the financial information.

(1) Receiving and handling costs.

(2) Cash discounts on purchases.
See all solutions

Recommended explanations on Business Studies Textbooks

Business Development

Read Explanation

Strategic Analysis

Read Explanation

Managers

Read Explanation

Nature of Business

Read Explanation

Organizational Communication

Read Explanation

Strategic Direction

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free