which of the following accounting elements does the matching principle help to match?

The matching principle is a common accounting concept or accounting principle. Under this, a company should report an expense in the income statement in the same period when it earns the revenue.

If, in the example above, the company reported an even bigger accounts payable obligation in February, there might not be enough cash on hand to make the payment. For this reason, investors pay close attention to the company’s cash balance and the timing of its cash flows. The matching principle is a part of the accrual accounting method and presents a more accurate picture of a company’s operations on the income statement. Cash accounting is often preferred because it’s simpler and easier to use. In many cases, it lets companies get the tax benefits of deductible expenses earlier than it could under accrual accounting. This is because they book expenses when they’re paid rather than when revenue starts. Before the adoption of the matching principle, expenses were shown in the income statement irrespective of whether they relate to the current accounting period or not.

Multiple Choice Accounting

Matching principle states that business should match related revenues and expenses in the same period. They do this in order to link the costs of an asset or revenue to its benefits. Revenue is earned and recognized upon product delivery or service completion, without regard to the timing of cash flow. Suppose a store orders five hundred compact discs from a wholesaler in March, receives which of the following accounting elements does the matching principle help to match? them in April, and pays for them in May. The wholesaler recognizes the sales revenue in April when delivery occurs, not in March when the deal is struck or in May when the cash is received. Similarly, if an attorney receives a $100 retainer from a client, the attorney doesn’t recognize the money as revenue until he or she actually performs $100 in services for the client.

The full disclosure principle requires that financial statements include disclosure of such information. Footnotes supplement financial statements to convey this information and to describe the policies the company uses to record and report business transactions. Accountants use generally accepted accounting principles to guide them in recording and reporting financial information. GAAP comprises a broad set of principles that have been developed by the accounting profession and the Securities and Exchange Commission . Two laws, the Securities Act of 1933 and the Securities Exchange Act of 1934, give the SEC authority to establish reporting and disclosure requirements.

Two Types of Business Accounting Methods

You purchase a bike for $200 in 2019 and it’s expected to have a lifespan of 10 years. The cost of the bike will need to be matched with the revenue it’s made you. In this case, let’s say you use it to bike to work and it’s saved you on gas. In this circumstance, you should charge the bike’s cost to the depreciation expense of $20 per year, adding up to 10 years. The computer is expected to last 10 years, meaning it will produce projects for the projected decade.

which of the following accounting elements does the matching principle help to match?

You will have to choose the one that is most convenient for your needs.

Generally Accepted Accounting Principles

These are some examples of when businesses can benefit from accrual accounting and the expense recognition principle. Period costs are shown on the financial statement as and when the company incurs them. For example, rent for the office, officer salaries, and other administrative expenses.

Which of the following is the correct order of preparing the financial statements?

The correct answer is a. Income statement, statement of stockholders' equity, balance sheet, statement of cash flows.

An economic entity’s accounting records include only quantifiable transactions. https://online-accounting.net/ Furthermore, accounting records must be recorded using a stable currency.

What is the matching principle quizlet?

Dock David Treece is a contributor who has written extensively about business finance, including SBA loans and alternative lending. He previously worked as a financial advisor and registered investment advisor, as well as served on the FINRA Small Firm Advisory Board. Question and Problem Sets Purpose of AssignmentStudents should understand the operating and cash cycles of a company, the mechanics in preparing a c… During January, the company provided services for $400,000 on acco… Your matched tutor provides personalized help according to your question details.

which of the following accounting elements does the matching principle help to match?

Another example would be if a company were to spend $1 million on online marketing . It may not be able to track the timing of the revenue that comes in, as customers may take months or years to make a purchase. In such a case, the marketing expense would appear on the income statement during the time period the ads are shown, instead of when revenues are received. Investors typically want to see a smooth and normalized income statement where revenues and expenses are tied together, as opposed to being lumpy and disconnected.