The distinction between recognition and realization is essential to accrual accounting, hence the importance accorded to recognition criteria. Firms recognize items that qualify for inclusion in the financial statements when they enter the financial statements. In the case of value decreases, the firm
a. recognizes the decreases as impairment expenses when it realizes the collection of the reduced cash flows.
b. recognizes the decreases as cost of goods sold when the decreases occur before it realizes the collection of the reduced cash flows.
c. recognizes the decreases as impairment expenses when the decreases occur before it realizes the collection of the reduced cash flows.
d. recognizes the decreases as cost of goods sold when it realizes the collection of the reduced cash flows.
e. None of these answer choices is correct.
C
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