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Warren Advertising becomes aware of a lawsuit after the end of the fiscal year, but prior to the issuance of financial statements. A loss should be accrued and a liability should be reported if the amount can be reasonably estimated and:
A)The cause for action occurred prior to the end of the fiscal year.
B)The damages would be payable within a year.
C)Both a. and b.
D)The contingency should not be accrued.

Respuesta :

jepessoa

Answer:

The answer is: A) The cause for action occurred prior to the end of the fiscal year.

Explanation:

Warren Advertising should always accrue its losses or liabilities according to the following basic accounting principles:

Accrual principle: Transactions must be recorded in the periods when they actually occur, not necessarily than in the periods when there are cash flows associated with them.

Conservatism principle: Expenses and liabilities must be recorded as soon as possible, revenue and assets only when they occur.