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Question
According to which of the following concepts in determining the net income from the business, all costs which are applicable to revenue of the period should be charged against that revenue.
According to which of the following concepts in determining the net income from the business, all costs which are applicable to revenue of the period should be charged against that revenue.
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Solution
The correct option is A Matching Concept
The matching principle requires that revenues and any related expenses be recognized together in the same reporting period. Thus, if there is a cause-and-effect relationship between revenue and certain expenses, then record them at the same time. If there is no such relationship, then charge the cost to expense at once.
This is one of the most essential concepts in accrual accounting, since it mandates that the entire effect of a transaction be recorded within the same reporting period.
The matching principle requires that revenues and any related expenses be recognized together in the same reporting period. Thus, if there is a cause-and-effect relationship between revenue and certain expenses, then record them at the same time. If there is no such relationship, then charge the cost to expense at once.
This is one of the most essential concepts in accrual accounting, since it mandates that the entire effect of a transaction be recorded within the same reporting period.
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