When expenses are presented by function in the income statement,
A) they should be presented by type of expense (e.g., depreciation, purchases, salaries).
B) they should be reported as part of other comprehensive income.
C) their cash flow predictive value is increased.
D) more professional judgment is required to allocate expenses between functions.

Question

Quizplus · Accepted Answer

When expenses are presented by function in the income statement, it often requires more professional judgment to allocate expenses between different functions such as cost of goods sold, selling expenses, and administrative expenses. This is because some expenses, like salaries, utilities, or depreciation, may need to be allocated across several functions, and determining the most appropriate allocation can involve significant judgment.

When Expenses Are Presented by Function in the Income Statement