Practice Quiz

CPA Accountant Review Questions

Category - Accounting

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Larry, who uses the accrual basis of accounting, hired an extra driver to help him make deliveries in December. The extra driver only works from December 1st through the 31st . Larry pays the driver on January 5th, but the expense is shown on the December income statement. Why?
  1. Cost benefit analysis
  2. Matching principle
  3. Cost principle
  4. Going concern principle
  5. Gross profit margin analysis
Explanation
Answer - B - The matching principle is the reason that the expense should be noted during the month it occurred, rather than when payment was made.

Key Takeaway: The recording of expenses with the related revenues is associated with another basic accounting principle known as the matching principle.
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