Question

When should a company record an expense for an item: when ordered, when received, when paid for, or when used?

1) When ordered
2) When received
3) When paid for
4) When used

Answer 1

A company should record an expense for an item when it is used or consumed, in line with the matching principle of accrual accounting, to correspond with the revenues of the same period.

Step-by-step explanation:

A company should record an expense for an item when the expense is incurred, which means when the item or service is used or consumed, not necessarily when it is ordered, received, or paid for. This approach is in accordance with the matching principle of accrual accounting, which states that expenses should be matched with the revenues they help to generate in the same accounting period. Consequently, if an expense is related to goods or services used to produce revenue during a specific period, it should be recorded in that period, even if payment is made at a different time.