Asset+VS+Expense

hurdlebook: business planning and accounting analysis ratio, budget, forecast

[]

[]  = Could you help me with a few multiple choice question on Accounting? =

A test for distinguishing between an asset and an expense is a. Whether the benefit extends into the next accounting period b. Whether the payment is made in cash c. The amount of the transaction

Which is not an example of an accounting estimate a. Useful life of depreciable asset b. Long service leave provided c. Accounts payable

Expenses classified by nature would not include: a. Manufacturing expenses b. Depreciation expense c. Wages and salaries expense

Cash receipts from interest and dividends are classified as which activity in the statement of cash flows a. Operating b. Investing c. Financing or operating

Which of these is an early warning sign indicating problems with cash flows? A. Dividends paid are greater than cash flow from operations B. A large amount has been spent on the acquisition of fixed assets C. Proceeds from financing activities are used to finance investment activities.

A possible explanation for a company reporting a loss on the profit report but a positive cash inflow of funds from operations is: a. A decrease in trade debtors b. An increase in trade debtors c. An increase in inventory.

The section of the statement of cash flows that is generally considered to be the best measure of a company’s ability to continue as a going concern is: Cash flows from investing activites Cash flows from operating activities Each gives an equal estimation.

Follow 2 answers //Report Abuse// 



Answers
Relevance

The idea is to analyze each choice and decide on the basis of logic.. > > A test for distinguishing between an asset and an expense is > a. Whether the benefit extends into the next accounting period > b. Whether the payment is made in cash > c. The amount of the transaction > > Assets are future economic benefits, so a seems to fit an asset. The using up of an asset is an expense. So again a seems to be a good choice. Cash is used to pay for expenses, buying assets, paying debts, investing in stocks and bonds, so it does not have much to do with differentiating between assets and expenses. We can discard b. The amount of a transaction can be large or small whether it is buying an asset or paying an expenses. so c does not fit at all. therefore a is the best answer. > > 2. Obviously we have to estimate how long an asset will be useful. b is a nonsense sentence so we have to discard it. and c is correct because we don't estimate how much we owe to someone. We know the amount. > > 4. For cash flow situations, think of the balance sheet as a T-account: > > __ > Current assets | Current liabilities > - - - - - - - -- - - - | - - - - - - - - - - - - - - > A. . . . . . . . . . | . . E > > Cash transactions above the dashed line are Operating Activities. Those in A are Investing Activities; those is the E equities area are financing Activities. Transactions that don't involve cash don't belong in any of these three categories. Using these rules, where will you record the collection of interest receivable, a current asset? And where do you report the interest and dividend income? Clearly in the income statement which reports the results of operations. They can't be investing activities because those are the buying and selling of investments and other non-current assets. So the correct answer is a. [|Prof] · 1 year ago 0 Thumbs up 0 Thumbs down Comment

//Report Abuse//

1st Question: a > 2nd C > 3rd > 4th B > 5 A > 6 B > 7. B [|wilson] · 1 year ago [|StartTopic=Content%2Ffinancial_analysis%2Fabout_business_numbers%2Fassets_vs._expenses.htm|SkinName=Default|http://www.hurdlebook.com/default_Left.htm#CSHID=financial_analysis%2Fabout_business_numbers%2Fassets_vs._expenses.htm|StartTopic=Content%2Ffinancial_analysis%2Fabout_business_numbers%2Fassets_vs._expenses.htm|SkinName=Default] > > || **Chapter 14****: About Business Numbers** - Page 14.3 ||> ||>  || > == Assets vs. Expenses == Many people can be confused by the accounting distinction between expenses and assets. For example, they would like to record research and development as assets instead of expenses, because those expenses create intellectual property. However, standard accounting and taxation law are both strict on the distinction: Some people are also confused by the specific definition of start-up expenses, start-up assets, and start-up financing. They would prefer to have a broader, more generic definition that includes, say, expenses incurred during the first year, or the first few months, of the plan. Unfortunately, this would also lead to double counting of expenses and non-standard financial statements. All the expenses incurred during the first year have to appear in the Profit and Loss statement of the first year, and all expenses incurred before that have to appear as start-up expenses. > This treatment is the only way to correctly deal with the tax implications and the proper assigning of expenses to the time periods in which they belong. Tax authorities and accounting standards are clear on this. > What a company spends to acquire assets is not deductible against income. For example, money spent on inventory is not deductible as an expense at the point when you buy it. Only when the inventory is sold, and therefore becomes cost of goods sold or cost of sales, does it reduce income. > === Why You Do Not Want to Capitalize Expenses === Sometimes people want to treat expenses as assets. Ironically, that is usually a bad idea, for several reasons:
 * Expenses are deductible against income, so they reduce taxable income, but expenses cannot be depreciated, ever.
 * Assets are not deductible against income, but assets whose value declines over time (usually long-term assets) can be depreciated.
 * Money spent buying assets is not tax deductible. Money spent on expenses is deductible.
 * Capitalizing expenses creates the danger of overstating assets.
 * If you capitalize the expense, it appears on your books as an asset. Having useless assets on the accounting books is not a good thing.