Q34Q - Intermediate Accounting (Kieso)

Question

State some of the more serious problems encountered in seeking to achieve the ideal measurement of periodic net income. Explain what accountants do as a practical alternative.

Step-by-Step Solution

Answer

The problems encountered by the accountants are associated with the determination of revenues and expenses and other facts linked with the same. 

Step-by-Step-Solution Step 1: Meaning of Accountant

The term accountant refers to an individual appointed by an organization’s management to maintain and record its accounting activities. An accountant keeps track of all financial transactions associated with the business concern.

Step 2: Problems in achieving ideal measurement of periodic net income

• The problem occurs from both sides, i.e., revenues and expenses. It is often noticed that revenues are not recognized according to the standard rules of the revenue recognition principle.
• In addition, the most critical issue is the determination of costs expired in the process of generating revenues.
• Further, it is difficult to determine the expiry of the costs, the benefit of which may last for future years. 

Step 3: Practical alternative

In resolve and minimize such problems the accounts must bifurcate the expenses and costs in such a manner that same can be expensed in the appropriate fiscal year.