ACCOUNTING THEORY- COST, EXPENSES, AND LOSS

You requested to deliver your auditors report personally to the board of directors of Sebal Manufacturing Corporation and answer questions posed about the financial statements. While reading the statements, one director asks, what are the precise meaning of the terms cost, expenses, and loss? These terms sometimes seem to identify similar items and other times seem to identify dissimilar items.

Required

Classify each of the following items as a cost, expense, loss or other category, and explain how the classification of each item may change:

i. Cost of goods sold

ii. Bad debts expense

iii. Depreciation expense for plant machinery

iv. Organization costs.

v. Spoiled goods

The terms period cost and product cost are sometimes used to describe certain items in financial statements. Define these terms and distinguish between them. To what types does each apply.