Identifying Expenses in the Income Statement

Steps:

• Review the income statement, which reports expenses incurred during the period to match revenues.
• Classify items: expenses reduce net income and are recognized when consumed or incurred.
• Evaluate each choice against accrual accounting principles for expense recognition.
• Select the option that directly represents an expense per matching principle.

Not enough information: Choices C and D are blank, preventing full analysis.

Why the others are wrong:

• A: Prepaid telephone charges are an asset (prepaid expense) until used, not expensed at year-end.
• B: Increase in provision is an expense (bad debt expense), but question states C is correct.

Final answer: Not enough information.