Which Situation Violates the Matching Principle

question 84

Multiple Choice

Which situation violates the matching principle?

• A)Employees are paid for wages worked in a previous month.The wages expense was recorded in the previous month.
• B)Consulting fees incurred have been recorded as an expense even though a bill has not yet been received.
• C)Depreciation was recorded for equipment even though the equipment was purchased on a date other than January 1.
• D)A 1-year insurance policy was paid in full on January 1 and the total amount of the bill was recorded as an expense in January.
• E)Customers are billed for services even though the company knows a portion of the customers will never pay.

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Definitions:

Perfect Complements

Goods that are always consumed together in fixed proportions because their consumption provides utility only when combined, such as left and right shoes.

Income Effect

The change in an individual's consumption choices that results from a change in their real income or purchasing power.

Substitution Effect

The substitution effect occurs when consumers replace cheaper items for more expensive goods due to changes in relative prices, holding utility constant.

Slutsky Compensated Demand Curve

Represents consumer demand by adjusting for changes in purchasing power, illustrating how quantity demanded varies with price, holding utility constant.