The largest expense reported on the income

Question

Which of the following costs is most likely to be the largest expense reported on the income statement of a merchandiser such as Wal-Mart?

• Salaries expense
• Cost of goods sold
• Advertising expense
• Income tax expense

1. Which of the following statements is incorrect with respect to accrual basis of accounting?
2. Expenses are recognized when incurred regardless of the timing of cash flows.
3. Revenues are recognized when earned regardless of the timing of cash flows.
4. Generally accepted accounting principles require use of the accrual basis.
5. It should not be used when providing financial statements to external decision makers.