Question

4. (2 pts) How does an accountant determine if a transaction is material and should be recorded? TF the event effect Financial Pesformre 5. (3 pts) Explain the concept of Recognition. What are the two tests to determine if transaction can be recognized? To Formaliy reerd time the n cLanntine recerds duro t Perisd te Vevenue campanc e arn must 1 2 e realized Yevenue ust be haalisable 6. (2 pts) Give an specific example of an implicit transaction. Ericad enh +ime Prepsid

i need different answer

Answer 1

Solution

For 1st one;

As accounting based on recording of all the material facts, if any transaction effects the investing decision of the investor it should be treated as material fact, but materiality of the transaction depends upon the nature, value, and significance of the external users.

For 2nd one;

Realisation concept in accounting described about the recognition of revenue

Revenue should recognise while seller realised and earns it, irrespective of the cash received or not (based on accrual concept).

Two tests for revenue recognition::

¹. Substantive tests,

2. Completeness tests,

3. Cutoff tests. Etc..

Answer for 3rd one;

For example Mr.X is a owner of his business and he works for his business entity without drawing salary, but he would like to earns return on investment instead of salary.

Therefore salary is an implicit transaction as it is opportunity cost/foregone cost to him.

Thank you:-)

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