Chapter 3, Problem 3.5S

(Learning Objective 2: Apply the revenue and expense recognition principles) Identify the accounting concept or principle that gives the most direction on how to account for each of the following situations:

1. a. A utility bill is received on December 27 and will be paid next year. When should the company record utility expense?
2. b. A physician performs a surgical operation and bills the patient’s insurance company, it may take three months to collect from the insurance company. Should the physician record revenue now or wait until cash is collected?
3. c. March has been a particularly slow month, and the business will have a net loss for the second quarter of the year. Management is considering not following is customary practice of reporting quarterly earnings to the public.
4. d. Salary expense of $48,000 is accrued at the end of the period to measure income properly.
5. e. A construction company is building a highway system, which will take four years. When should the company record the revenue it earns?