When to recognize expense

This query is : Open

Rahul Sharma (Querist)
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01 March 2014 Can anyone pls tell me when to book the expense of Lift installation under construction business.

Total contract price of lift installation is 1300000/- payment is made in 2 years and in 2nd year lift is installed in construction site.
Lift not to be treated as Fixed Asset. It is a material used in the completion of building for sale.
Thanks

@VaibhavJ

@VaibhavJ (Expert)
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01 March 2014 Costs are usually classified into two categories: product costs and period costs. Product costs, such as material, labor, and factory overhead, attach to the product. Companies carry these costs into future periods if they recognize the revenue from the product in subsequent periods. Period costs, such as salaries and other administrative expenses are recognized when they are incurred. This approach is commonly referred to as the matching principle. However, there is some debate about the theoretical validity of the matching principle. A key concern is that matching allows companies to defer certain costs and treat them as assets on the balance sheet even though these costs may not have future benefits.

Rahul Sharma

Rahul Sharma (Querist)
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03 March 2014 Thanks Vivek but my question is when to record lift expense.
when we make payment to the Lift making co.( in installments) or when we got the delivery of lift in my construction site.

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