Which of the following describes the matching principle?

• A. Recognize expenses in the same period as the revenues they help generate
• B. Recognize expenses when they are paid
• C. Recognize expenses when incurred
• D. Recognize expenses at the end of the fiscal year

Answer: (A)

The matching principle requires expenses to be recognized in the same period as the revenues they help generate. This timing ensures that the costs tied to earning a particular period’s revenue are recorded with that revenue, giving a true picture of profitability for that period. In accrual accounting, you record expenses when the related revenue is earned or when the expense benefits that revenue, not just when cash is paid. For example, advertising or commissions that contribute to December sales are expensed in December, even if the bill is paid later. Recognizing expenses only when cash is paid or only at year-end would distort the period’s profit.