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Expense Recognition

Definition

Expense is the cost incurred to generate revenue

Recognition

Expenses are also recognized in the period that is benefitted regardless of when the payment is made in cash. E.g. salaries earned by employees are considered an expense for the period in which the employee works even though they may not be paid until the following period.

According to the conservatism convention, it is a rule to be followed

Anticipate no profit but provides for all the possible losses

This means that an expense is immediately recognized in the period when incurred regardless of the payment is made or not. In this way accountant follows the policy of playing safe and also follow the principle of matching concept.

Example

If an employee rendered his services for a period then it will be an expense for the business, to be recognized immediately.

Salaries expense (expense)

Accounts payable (liability)

The dual effect has been charged to the concerned accounts

So, expenses are immediately recognized in profit and loss account. But the treatment for preliminary expenses are different because it is considered as a differed cost which is considered as an asset as it would give the benefit for more than one accounting period. And in each accounting period that portion of cost again which benefit is realized in the relevant period that will be recognized in profit & loss a/c.