Which of the Following Situations Violates the Matching Principle During

question 151

Multiple Choice

Which of the following situations violates the matching principle during 2019 for a real estate company that pays its agents on commission?

• A)Sales commissions are charged to expense in 2019 on all sales made in 2019 even though some of the commissions have not been paid.
• B)Insurance expense is recognized for the total cost of a 1-year policy purchased in July 2019.
• C)Wages expense is recognized in 2019 even though payday is not until sometime in 2020.
• D)Sales commissions paid in 2019 for 2020 commissions are recorded as prepaid expenses for 2019.

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Definitions:

External Financing

Funds a business obtains from outside the company, including loans, equity investments, and other financial instruments.

After-Tax Cost

The net cost of an expense or investment after the effects of taxes have been accounted for.

Net Present Value

This refers to the calculation used to determine the current value of a series of future cash flows by applying a discount rate.

Initial Cash Outlay

The upfront amount of cash needed to initiate a project or investment, including acquisition costs and other initial expenses.