The expense recognition principle, also called the matching principle:
A) Provides guidance on when a company must recognize revenue.
B) Prescribes that a company report the details behind financial statements that would impact users' decisions.
C) Prescribes that accounting information is based on actual cost.
D) Prescribes that a company record the expenses it incurred to generate the revenue reported.
E) Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Question

Quizplus · Accepted Answer

The expense recognition principle, also known as the matching principle, requires a company to record the expenses it incurred in generating the revenue reported. This principle states that expenses should be recognized in the same period as the corresponding revenue is earned, in order to reflect the true cost of generating that revenue. This ensures that the company's financial statements accurately reflect its profitability and helps users make informed decisions.

The Expense Recognition Principle, Also Called the Matching Principle