(L.O. 2) Which of the following statements best describes the matching principle?
Approach and Explanation: Mentally define the matching principle before you read the answer selections. Jot down the key words of your definition. The revenue recognition principle gives us guidance to determine when to recognize (record and report) revenue. The expense recognition (matching) principle then dictates that the expenses incurred in generating the revenue earned during the current period should be recognized in the same period as the revenue it helped to create. Answer selections “a” and “c” are nonsensical responses. Answer selection “b” refers to the fact that there is an equality of debits and credits in the ledger but that equality is due to the basic accounting equation and the double-entry accounting system, not the matching principle. (Solution = d.)
(L.O. 2) Which of the following statements is associated with the accrual-basis of accounting?