Question

The company had its delivery van repaired in January for $600 and charged the amount on account. What expenses were recorded in January?

1) Repair expenses for the delivery van
2) Account charges for the repair
3) Total expenses for the month of January
4) None of the above

Answer 1

In January, the company recorded an expense of $600 for the delivery van repair as an explicit cost, which will be used to calculate that month's accounting profit.

Step-by-step explanation:

The question pertains to the recording of expenses for a company's delivery van repair. In January, the company incurred an expense of $600 on account for the repair of the van. This is an explicit cost since it's a direct outlay of cash accounting for the repair services. When calculating the profit for the company, this expense must be subtracted from the sales revenue along with any other explicit costs.

For example, based on the supplied self-check question, if a firm has sales revenue of $1 million and incurs costs of $600,000 on labor, $150,000 on capital, and $200,000 on materials, the accounting profit would be calculated as total revenues minus these explicit costs, equating to $50,000 ($1,000,000 minus $600,000 minus $150,000 minus $200,000). Similarly, the van repair cost would reduce the accounting profit for the month it was recorded.