Why would a company recognize the cost of an asset on its balance sheet rather than treat it as an expense on the date it is acquired?
A)Conservatism requires this recognition.
B)Matching requires costs to be matched against the related revenues of the asset.
C)Strictly to record the amount in the most economically favorable manner possible for the company.
D)The stable dollar concept will not allow inflation to be added to expenses, but does allow inflation to be added to assets.

Question

Quizplus · Accepted Answer

According to the matching principle, costs should be recognized and reported in the same period as the related revenue. By recognizing the cost of an asset on the balance sheet, the company can then depreciate (allocate) the cost over the useful life of the asset, which aligns with the expected revenue generated by the asset. This ensures that expenses are matched with the revenue generated by the asset, resulting in a more accurate representation of the company's financial performance.

Why Would a Company Recognize the Cost of an Asset