Which statement is NOT true regarding the sales method of accounting for byproducts?
A)The method makes no journal entries until the byproduct is sold.
B)This method is the preferred method because of the matching principle.
C)Revenues of the byproduct can be recorded in the income statement as revenue.
D)Revenues of the byproduct are not recorded at the time of production.
E)No value is attached to the byproduct inventory.

Question

Quizplus · Accepted Answer

The statement that the sales method of accounting for byproducts is the preferred method because of the matching principle is not true. The matching principle states that expenses should be matched with the revenues they generate. However, with the sales method, revenues are not recorded until the byproduct is sold, which could result in a delay in matching the revenue with the expenses incurred to produce the byproduct. Therefore, the preferred method is often the allocation method, which allocates a portion of the joint costs to the byproduct at the time of production to recognize revenue and cost of goods sold.

Which Statement Is NOT True Regarding the Sales Method of Accounting