In the preparation of departmental income statements, the preparer completes the following steps in the following order:
A) Identify direct expenses; allocate indirect expenses; allocate service department expenses.
B) Identify indirect expenses; allocate direct expenses; allocate service department expenses.
C) Identify service department expenses; allocate direct expenses; allocate indirect expenses.
D) Identify direct expenses, allocate service department expenses, allocate indirect expenses.
E) Allocate all expenses.

Question

Quizplus · Accepted Answer

The first step in preparing a departmental income statement is to identify the direct expenses that can be directly associated with the department's operations. Next, indirect expenses need to be allocated to the department, followed by service department expenses. This order is most logical and follows the flow of expenses from direct to indirect to service expenses. Option B is incorrect because it allocates direct expenses after allocating indirect expenses. Option C is incorrect because it starts with service department expenses, which are the last to be allocated. Option D is incorrect because it doesn't allocate all expenses, as it skips the allocation of indirect expenses. Option E is incorrect because it doesn't follow a logical order of allocation.

In the Preparation of Departmental Income Statements, the Preparer Completes