Multiple Choice
When considering the reliability of management for a business opportunity, which type of accounting is most relevant for providing information to internal decision-makers?
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1. Introduction to Accounting
Types of Accounting
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The cost of groceries and gas is considered a(n):
A
Asset
B
Revenue
C
Expense
D
Liability
Verified step by step guidance1
Understand the definition of an expense: In financial accounting, an expense is a cost incurred by a business or individual in the process of earning revenue or maintaining daily operations. Expenses reduce the net income and are recorded on the income statement.
Analyze the nature of groceries and gas: Groceries and gas are costs that are consumed or used up in daily living or operations. They do not provide future economic benefits, which is a characteristic of assets.
Compare groceries and gas to other financial categories: Groceries and gas are not liabilities because they do not represent obligations to pay in the future. They are not revenue because they do not generate income. Instead, they are costs incurred during daily activities.
Classify groceries and gas as expenses: Since groceries and gas are consumed and do not provide future benefits, they are classified as expenses. This aligns with the definition of expenses in accounting.
Conclude the classification: Groceries and gas are considered expenses because they represent costs incurred in daily living or operations, reducing net income and appearing on the income statement.
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