Question

expenses can be matched against revenues:

a. if the earnings process is not complete

b. when cash is collected from the sale of products

c. when payment is made for costs related to revenue

d. in the same time period as the revenue that it helped to generate

Answer 1

Correct answer (D) ‘In the same time period as the revenue that it helped to generate.’

Explanation

Matching principle states that all revenues should be matched with the expenses that are incurred to earn those revenues. Expenses are matched even though they are not actually paid in cash or revenue received in cash. Accrual accounting system records income and expenses as and when they occur. Matching principle states that Expenses are matched against the revenue earned in the same period.    

Say a company pays bonus to employees every month if sales are more than target. Company pays bonus of every month in the next month. So if in any month bonus is payable then it will be recorded as an expenses in the month for which bonus relates to, not when it is actually paid.