Which statement is correct about expenses on the income statement?
A)Classifying expenses by nature means that expenses are reported according to the activity for which they are incurred.
B)Examples of expenses classified by function are cost of goods sold and administrative expenses.
C)Expenses must be classified by their function.
D)Expenses must be classified in decreasing order of magnitude.

Question

Quizplus · Accepted Answer

Expenses can be classified either by nature (such as raw materials, labor, utilities) or by function (such as cost of goods sold, administrative expenses, selling expenses). Option B correctly identifies examples of expenses that are classified by function. Option A is incorrect because classifying expenses by nature means that expenses are reported according to the type of expense, not the activity for which they are incurred. Option C is incorrect because although expenses can be classified by function, they can also be classified by nature. Option D is incorrect because expenses are not required to be classified in any particular order.

Which Statement Is Correct About Expenses on the Income Statement