A publisher sends magazines on a monthly basis to a customer throughout Year 2. The customer had paid for this subscription in December Year 1. For the February Year 2 edition of the magazine, the publisher purchases paper in January Year 2 by paying cash. When should the company report the costs associated with the purchase of paper?

Question

Business

Goldie

11 December, 13:32

A publisher sends magazines on a monthly basis to a customer throughout Year 2. The customer had paid for this subscription in December Year 1. For the February Year 2 edition of the magazine, the publisher purchases paper in January Year 2 by paying cash. When should the company report the costs associated with the purchase of paper?

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Dennis Wise · Answer 1

The cost of paper shall be accounted in February in Year 2

Explanation:

The matching principle clearly states to match all the revenues against expenses. Here, the revenue is recognized in the month of February in Year 2 accordingly, the revenue is related to that period and thus cost shall be recognized at that time only.

In the month of January when paper is purchased it shall be recorded as part of inventory, and shall be charged as cost in income statement only when it is utilized for creating finished good, and generating revenue.