Which of the following statements is true of the sales method of accounting for byproducts?
A) It makes journal entries when the byproducts are produced.
B) It is the preferred method because of the matching principle.
C) It allows a firm to manage its reported earnings by timing the sale of byproducts.
D) This method recognizes the byproduct inventory in the accounting period in which it is produced.

Question

Quizplus · Accepted Answer

The sales method of accounting for byproducts recognizes revenue and profit from the sale of byproducts in the period in which they are sold. This allows a firm to manage its reported earnings by timing the sale of byproducts. A firm can choose to hold onto its byproducts and sell them in a later period when it needs a boost in earnings, or it can sell them in the current period to recognize revenue and profit. This method is not preferred because it does not match the cost of producing the byproducts with the revenue received from their sale. Option A is incorrect because the journal entries for production of byproducts would be made under any method. Option B is incorrect because the sales method does not follow the matching principle. Option D is incorrect because it recognizes the byproduct inventory in the period of sale, not the period of production.

Which of the Following Statements Is True of the Sales