Multiple Choice
Which of the following types of accounting is primarily used to evaluate a project's financial position and performance?
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1. Introduction to Accounting
Types of Accounting
Multiple Choice
Which of the following is likely to be a business expense fully deductible in the current year?
A
Office supplies purchased and used during the year
B
Purchase of land for company expansion
C
Prepaid insurance for the next three years
D
Repayment of the principal on a business loan
Verified step by step guidance1
Understand the concept of business expenses: Business expenses are costs incurred in the ordinary course of business operations. To be fully deductible in the current year, the expense must be both ordinary (common and accepted in the industry) and necessary (helpful and appropriate for the business). Additionally, the expense must not be capitalized or spread over multiple years.
Analyze the options provided: Evaluate each option to determine whether it meets the criteria for being fully deductible in the current year. Consider whether the expense is ordinary, necessary, and used within the current year.
Option 1: Office supplies purchased and used during the year. These are typically considered ordinary and necessary expenses, and if they are used within the current year, they are fully deductible.
Option 2: Purchase of land for company expansion. Land is a capital asset, and its cost is not deductible in the current year. Instead, it is capitalized and may be depreciated or amortized over time, depending on the applicable accounting rules.
Option 3: Prepaid insurance for the next three years. Prepaid expenses are generally not fully deductible in the current year because they provide benefits over multiple years. The deduction is typically spread out over the coverage period. Option 4: Repayment of the principal on a business loan. Repayment of principal is not considered a deductible expense; only the interest portion of the loan payment may be deductible.
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