大学课程《会计英语》PPT课件：Chapter 9 Unit 2

Cost vs. Expense
Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction. In other words, when we agree to pay out cash or other assets for goods or services received, we have incurred a cost.
Expense Recognition
An expense will give rise to economic sacrifices to the business.
In order for an item to be recorded as an expense, it must meet the general criteria: meet the definition of expenses and have a valid measurement basis and amount.
Key Terms
1. Cost flow 成本流转 2. Cost flow assumption 成本流转假设
Defining Expenses
Generally speaking, expenses are costs that are charged against revenue and that are related to the entity’s basic business.
Examples of Expenses
The cost of employees’ salaries, advertising, rent, utilities, and the gradual wearing-out (depreciation) of such assets as buildings, automobiles, and office equipment.
The essence of the matching principle is that as revenues are earned, expenses are incurred to generate those revenues. These expenses must be recognized and reported as expenses of the period during which the related revenue is recognized.
Continued
However, there are many expenditures that result in a cost that is not recognized immediately as an expense. A purchase of equipment is an obvious example. The cost of equipment is recorded as an asset, and is only gradually allocated to expense as the equipment is used. Thus, we must be very careful not to use the word “expense” when we really mean “cost”.
An expense reduces assets if payment occurs at the time that the expense is recorded or if payment has been made in advance.
If the expense will not be paid until later, as, for example, the purchase of advertising services on account, the recording of the expense will be accompanied by an increase in liabilities.
recognition. Identify the major categories of expenses. Explain depreciation expense and tell the
difference between depreciation expense and other expense items. Describe the accounting for research and development costs.
While a revenue recognition is accompanied by an increase in net assets, recognition of expenses will cause a decrease in net assets either by way of outflows or reductions of assets or incurrence of liabilities.
Like revenue, expenses should be defined in relation to assets and liabilities: expenses are decreases in economic resources, either by way of outflows or reductions of assets or incurrence of liabilities, resulting from an entity’s ordinary revenue generating or service delivery activities.
Matching Concept
The matching principle requires that once revenues are determined in conformity with the revenue principle for any reporting period, the expenses incurred in generating the revenue should be recognized in that period.
Continued
When the benefits of the cost have been used and we put that cost or a portion thereof on the income statement, we have recognized an expense. Often, the two occur at the same time, or at least in the same accounting period. For example, when we pay salaries to administrative employees, we incur a cost for labour, and recognize the full cost on the income statement as an expense.
Un Objectives
After studying this unit, you should be able to: Define expense in relation to assets. Describe the expense recognition criteria. Explain the relationship of revenue and expense
All these costs are necessary to attract and service customers and thereby earn revenue.
Expenses are often called the “costs of doing business,” that is the cost of the various activities necessary to carry on a business.
Timing and Matching
Timing is an important factor in matching (offsetting) revenue with the related expenses. For example, in preparing monthly income statements, it is important to offset this month’s expenses against this month’s revenue. We should not offset this month’s expenses against last month’s revenue, because there is no cause and effect relationship between the two. This involves the application of the accrual basis of accounting.
An Expense Decreases Owners’ Equity
An expense always causes a decrease in owners’ equity. The related changes in the accounting equation can be either (1) a decrease in assets, or (2) an increase in liabilities.
In measuring net income for a period, revenue should be offset by all of the expenses incurred in producing that revenue on a basis of “cause and effect”, which is called the matching principle.
Specific Expense Items
Cost of goods sold Depreciation expense Research and development costs
Cost of Goods Sold
Cost of goods sold represents a significant expense category in many income statements. The determination of cost of goods sold involves allocating the total cost of goods available for sale during each period between (1) the cost of goods sold and (2) the cost of the ending inventory.
Relationship between Revenues and
Expenses
Expense recognition is highly dependent on the revenue recognition point chosen by a company. A significant relationship exists between revenue and expenses. Expenses are incurred for the purpose of producing revenue.