The supplier to the school cafeteria is stuck with a lot of unsold whole turkeys just before Christmas 20X8. They shape the meat into slices to be put on bread and sell this at a discount. The F&B manager decides to buy a few pounds on December 23rd, the last day of school that year, and put it in the freezer for selling it sometime in January 20X9. She pays the bill on January 15th, 20X9. In which month will the cost of sales be recorded in the income statement of the cafeteria?
A) At the time they sell the meat: income statement January 20X9.
B) At the time they pay the bill: income statement January 20X9.
C) C At the time they decide to buy the meat: income statement December 20X8.

Question

Quizplus · Accepted Answer

The cost of sales will be recorded in the income statement in the month they sell the meat, which is January 20X9 according to the scenario. This follows the matching principle in accounting, which requires expenses to be matched with the revenues they generate. Since the sliced turkey will be sold in January, the cost of the unsold whole turkeys should also be recognized in January when the revenue is earned.

The Supplier to the School Cafeteria Is Stuck with a Lot