- A. passing of entries
- B. consistency convention
- C. matching concept ✓
- D. adjusting for revenue
The answer to the question is: C. matching concept
The matching concept, also known as the matching principle, is a fundamental accounting principle that requires expenses to be recognized in the same period as the revenues to which they relate. This principle ensures that the financial statements accurately reflect the results of operations for a specific period. In other words, it aims to match the expenses incurred in generating revenue with the revenue generated in that period. The matching concept is essential for providing a true and fair view of a company’s financial performance and position.
When goods are sold or services are rendered, the revenue from these transactions should be recognized in the accounting period in which they are earned, regardless of when the cash is received. Similarly, expenses incurred in generating this revenue should be recognized in the same period. This ensures that the income statement reflects the costs associated with generating the revenue, providing a more accurate representation of the profitability of the business.
The matching concept is closely related to the accrual basis of accounting, where revenues and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged. This stands in contrast to the cash basis of accounting, where transactions are only recorded when cash is received or paid.
In summary, the matching concept plays a crucial role in ensuring that financial statements accurately reflect the economic reality of a business by aligning revenues with their associated expenses in the same accounting period.
