Question

company xyz recognizes $2k in sales in the month of August, Auditors determine that $200 in telephone expenses was incurred to generate that revenue and require xyz to record the amount in the month of August. This is an example of what accounting principle?

Answer 1

Matching principle.

The matching principle of accounting says that an income shall be matched with the expenses incurred to earn it.

For example, in order to earn revenue by selling a loaf of bread, the expenses incurred in making the bread shall be matched with that revenue.

In the given example $2k sales is the revenue and the $200 expenses incurred in earning them shall be deducted from that revenue in determining the net income, this is an example of matching principle of accounting.