Multiple Choice
Which of the following statements best aligns with the principles of effective revenue and expense recognition in financial accounting?
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3. Accrual Accounting Concepts
Revenue Recognition and Expense Recognition
Multiple Choice
Which of the following transactions would cause net income for the period to decrease?
A
Recording depreciation expense for the period
B
Issuing common stock to investors
C
Collecting cash from a customer for a previous credit sale
D
Borrowing money from a bank
Verified step by step guidance1
Understand the concept of net income: Net income is calculated as revenues minus expenses, taxes, and other deductions. Any transaction that increases expenses or reduces revenues will decrease net income.
Analyze the transaction 'Recording depreciation expense for the period': Depreciation expense is a non-cash expense that represents the allocation of the cost of a tangible asset over its useful life. Recording depreciation increases expenses, which reduces net income.
Analyze the transaction 'Issuing common stock to investors': Issuing common stock is a financing activity that increases equity but does not affect revenues or expenses. Therefore, it does not impact net income.
Analyze the transaction 'Collecting cash from a customer for a previous credit sale': Collecting cash for a previous credit sale is a cash flow activity that affects the balance sheet but does not impact revenues or expenses, as the revenue was already recognized when the credit sale occurred.
Analyze the transaction 'Borrowing money from a bank': Borrowing money is a financing activity that increases liabilities but does not affect revenues or expenses directly. Therefore, it does not impact net income.
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