Expenses Recognition

Expenses Recognition

The definition of Expenses according to IASB framework:

 Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.

 The definition of expenses encompasses losses as well as those expenses that arise in the course of the ordinary activities of the entity. Expenses that arise in the course of the ordinary activities of the entity include, for example, cost of sales, wages and depreciation. They usually take the form of an outflow or depletion of assets such as cash and cash equivalents, inventory, property, plant and equipment.

 Expenses Via Losses

 Losses represent other items that meet the definition of expenses and may, or may not, arise in the course of the ordinary activities of the entity.

 Losses represent decreases in economic benefits and as such they are no different in nature from other expenses. Hence, they are not regarded as a separate element in this Framework.

 Losses include for example those resulting from disaster such as fire of flood.

 Expenses are deducted against revenues to arrive at net profit or loss

General Rule Of Recognition:

 Recognition is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the following criteria for recognition:

 It is probable that any future economic benefit associated with the item will flow to or from the entity; and

 The item's cost or value can be measured with reliability.

 Expenses are recognized when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably. This means, in effect, that recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a decrease in...