RS Corporation, a manufacturer of ethnic foods, contracted in 2014 to purchase 600 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2015. By 12/31/14, the price per pound of the spice mixture had risen to $5.40 per pound. In 2014, RS should recognize

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Under accrual accounting, RS Corporation should recognize expenses when they are incurred, not when they are paid. Since the contract was for delivery in spring of 2015, no expense or loss should be recognized in 2014 related to the price change of the spice mixture. The change in price does not affect the financial statements of 2014 because the transaction has not yet occurred.

RS Corporation, a Manufacturer of Ethnic Foods, Contracted in 2014