Question

Tim owns a woodworking business. They were commissioned to create a table. The table is finished and the person who commissioned the job paid for it and picked it up two months after the table was finished. At what point would Tim expense his product costs?

Answer 1

In Tim's woodworking business, expenses for product costs are recorded when the product is sold and revenue is recognized, which in this case is when the customer paid for and picked up the table.

Step-by-step explanation:

The expense of product costs in a business such as Tim's woodworking enterprise occurs when the product is considered "sold", which is typically aligned with the recognition of revenue. In accounting terms, this is guided by the matching principle, which states that expenses should be recorded in the same period as the revenues that are related to those costs. Since the table was commissioned, produced, and then delivered to the customer, the revenue from the sale would be recognized at the point of delivery and payment. Consequently, this is the point at which Tim would record the expenses associated with the production of the table (material, labor, overhead, etc.).If the customer paid for and picked up the table two months after it was finished, Tim would record the expense in his accounting records at that time, assuming he is using accrual basis accounting. This ensures that the revenue from the sale and the costs of creating the table are matched in the same accounting period, providing an accurate picture of the business's financial performance.