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CFA Level I · CFA Level I Exam · Analyzing Income Statements

Under IFRS, a company that sells goods on credit recognizes the related cost of goods sold in the same period as the revenue from those goods. This treatment is most likely an application of the:

Recognizing cost of goods sold in the same period as the related sales revenue applies the matching principle. Costs are linked to the revenue they helped generate. Going concern and conservatism address different issues: business continuity and caution under uncertainty.

  1. Amatching principleCorrect
  2. Bgoing concern assumption
  3. Cconservatism convention

Explanation

Expenses directly associated with revenue are recognized in the period the revenue is recognized. This is the matching principle. Going concern concerns continuity of operations, and conservatism concerns caution in uncertain estimates, not the timing of expense recognition against revenue.

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