Question

The expense recognition (matching) principle is used to determine how much of the cost of goods available for sale is deducted from sales and how much is carried forward as inventory. T/F ?

Answer 1

False

Matching principle states that all expenses related to a period should be matched with the revenues earned in that period. It also says that expenses should be recognized in the period in which they are incurred even though cash is not paid against that expense, such as Interest accrues on bonds, salaries payable etc.

Expense recognition ( Matching ) principle also ensures cost of goods sold is recognized in the period of sales. Recognition of Cost of Goods sold automatically reduces value of inventory to unsold inventory during a period by reducing the cost of inventory sold from total inventory of the year.

Matching principle is not just about cost of goods sold but all expenses related to a period such as depreciation, sales commission, interest expense etc.