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Gains and losses




Expenses

Expenses are outflows or depletions of assets (or additions to liabilities) that arise in the course of the enterprise's normal activities.

The events from which expenses arise and expenses themselves are referred to by a variety of names, including cost of sales, wages and depreciation.

An expense is recognized when it is realized that an expenditure does not produce future economic benefits. It is also recognized when a liability is incurred without the recognition of an asset. When it is possible to do so, expenses are recognized in the income statement on the basis of direct association between expenses incurred and the earning of specific items of income. The process is commonly referred to as matching of expenses with revenues.

 

Gains are increases in equity that result from transactions that are incidental to the enterprise's activities and from other transactions, events or circumstances affecting the enterprise during a period, except those that result in revenues or equity contributions.

Losses are decreases in equity that result from transactions that are incidental to the enterprise's activities and from other transactions, events or circumstances affecting the enterprise during a period, except those that result in expenses or distributions of equity.

Gains are normally recognized when realized. Losses are normally recognized when realised or when it becomes evident that there is an impairment in the value of the assets, or an increase in the liabilities, to which the losses relate.

 

žTESTS

I. Choose the correct answer:

  1. Accounting can be divided into such phases:

a) capture and recording of financial information;

b) processing and communication information;

c) capture, communication and processing of the financial information.

 

  1. The left hand-side of the double entry system is called:

a) the debit side;

b) the credit side.

The right hand-side of the double entry system is called:

a) the debit side;

b) the credit side.

 

  1. The principle of double-entry bookkeeping was made:

a) in France;

b) in England;

c) in Northern Italy;

d) in South Italy;

 

4. Balance sheet is drawn:

a) annually;

b) half-yearly;

c) quarterly;

d) monthly;

e) all are right.

 

II. Match what statements are true and what are false. Results write to the table:

 

1.The accounting system is determined to a significant extent by the level and direction of the economic system’s development.

2.Accounting is used to describe the transactions entered into by only one kind of organization.

3.Accounting can show the managers or owners of a business whether or not the business is operating at a profit.

4.Accounting equation states that a firm’s assets must equal its liability plus its owners’ equity.

5.Accounting is divided into two phases: capturing and processing of financial information.

6.The balance sheet shows a lot of useful financial information, but it does not show everything.

Table

             
True            
False            

 

ì Unit 12




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