Which of the following statements about expenditures on advertising is true?

• A. Advertising expenditures are never reported on the income statement.
• B. Advertising expenditures are recognized as revenue when the advertisement is published.
• C. Advertising expenditures must always be capitalized as intangible assets.
• D. Advertising expenditures are generally expensed in the period in which they are incurred.

Answer: (D)

Verified step by step guidance

1. Understand the nature of advertising expenditures: Advertising costs are typically considered operating expenses incurred to promote a company's products or services.
2. Review the accounting treatment for advertising expenditures: According to generally accepted accounting principles (GAAP), advertising costs are usually expensed in the period they are incurred, as they do not provide long-term benefits that can be capitalized.
3. Analyze why advertising expenditures are not capitalized: Capitalization is reserved for costs that provide future economic benefits, such as acquiring tangible or intangible assets. Advertising does not meet this criterion as its benefits are typically short-term.
4. Clarify why advertising expenditures are reported on the income statement: These costs are part of operating expenses and are included in the calculation of net income for the period.
5. Reject incorrect statements: Advertising expenditures are not recognized as revenue, nor are they excluded from the income statement. They are expensed in the period incurred, aligning with the matching principle in accounting.