Which one of the following statements is correct assuming accrual accounting is used?
A) The addition to retained earnings is equal to net income plus dividends paid.
B) Credit sales are recorded on the income statement when the cash from the sale is collected.
C) The labor costs for producing a product are expensed when the product is sold.
D) Interest is a non-cash expense.
E) Depreciation increases the marginal tax rate.

Question

Quizplus · Accepted Answer

Under accrual accounting, expenses are matched with the revenues they help to generate. Therefore, the labor costs associated with producing a product are recognized as an expense when the product is sold, not when the labor is paid for or incurred. This aligns with the matching principle of accrual accounting.

Which One of the Following Statements Is Correct Assuming Accrual