Chapter 3, Problem 1PA

For each of the following situations write the principle, assumption, or concept that justifies or explains what occurred.

A. A landscaper received a customer’s order and cash prepayment to install sod at a house that would not be ready for installation until March of next year. The owner should record the revenue from the customer order in March of next year, not in December of this year.

B. A company divides its income statements into four quarters for the year.

C. Land is purchased for $205,000 cash; the land is reported on the balance sheet of the purchaser at $205,000.

D. Brandy’s Flower Shop is forecasting its balance sheet for the next five years.

E. When preparing financials for a company, the owner makes sure that the expense transactions are kept separate from expenses of the other company that he owns.

F. A company records the expenses incurred to generate the revenues reported.