Which of the following is a characteristic of a business opportunity in the context of accounting?

• A. It involves the potential to generate future economic benefits.
• B. It is only relevant for governmental accounting.
• C. It must be reported as an expense in the income statement.
• D. It is always recorded as a liability on the balance sheet.

Answer: (A)

Verified step by step guidance

1. Understand the concept of a business opportunity in accounting: A business opportunity refers to a situation or condition that has the potential to generate future economic benefits for an entity.
2. Analyze the options provided in the question: Evaluate each statement to determine its alignment with the definition of a business opportunity.
3. Option 1: 'It involves the potential to generate future economic benefits.' This aligns with the definition of a business opportunity, as it focuses on the potential for future benefits.
4. Option 2: 'It is only relevant for governmental accounting.' This is incorrect because business opportunities are relevant across all types of accounting, not just governmental accounting.
5. Option 3 and 4: 'It must be reported as an expense in the income statement' and 'It is always recorded as a liability on the balance sheet.' These are incorrect because a business opportunity is not inherently an expense or liability; it represents potential benefits, not obligations or costs.