Question

For a large hospitality firm, why would gasoline bought for 20 be recorded as an expense instead of an asset?

1) 0/120 is high enough to disqualify the purchase for classification as an asset
2) the amount is immaterial and it would be impractical to account for the gas on a usage basis
3) gasoline purchases are liabilities, not assets
4) the firm would probably use the gasoline very slowly

Answer 1

Gasoline bought for $20 by a large hospitality firm is recorded as an expense because the amount is immaterial and it's impractical to track its usage over time.

Step-by-step explanation:

The question at hand is related to how a transaction is recorded in accounting practices within a business context. Specifically, it addresses why gasoline purchased for $20 by a large hospitality firm would be recorded as an expense instead of an asset. The correct answer is that the amount is immaterial and it would be impractical to account for the gas on a usage basis.

Gasoline is consumed rapidly in the normal course of business operations, and due to its consumable nature and the fact that it provides immediate benefit without future economic value, it is classified as an expense.

Recording small, consumable purchases like gasoline as assets would require tracking their usage over time, which is not feasible or cost-effective for such low-value items. The concept in question is an illustration of the materiality principle in accounting, which states that transactions should be recorded in a way that reflects their true financial impact.