What is the matching principle?

• A. Match expenses to the revenues they help generate in the same period.
• B. Record revenues only when cash is received.
• C. Record expenses when incurred, regardless of revenues.
• D. Recognize all assets at historical cost.

Answer: (A)

The matching principle requires that expenses be recognized in the same accounting period as the revenues they help generate. This alignment gives an accurate view of a period’s profitability by tying the costs to the benefits they produced, not just when cash changes hands. For example, if you sell a product in December and incur related costs (like cost of goods sold and sales commissions) in December, those expenses should be recorded in December, even if some payments to suppliers occur in January. This prevents distorting net income by shifting either revenues or expenses to a different period. The alternatives fall short because one describes recognizing revenue only when cash is received, another suggests expenses are recognized only when incurred regardless of revenue, and another deals with asset measurement rather than the timing of expense recognition.