The Expense Recognition Principle, Also Called the Matching Principle

question 287

Multiple Choice

The expense recognition principle, also called the matching principle:

• A) Provides guidance on when a company must recognize revenue.
• B) Prescribes that a company report the details behind financial statements that would impact users' decisions.
• C) Prescribes that accounting information is based on actual cost.
• D) Prescribes that a company record the expenses it incurred to generate the revenue reported.
• E) Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

---

Definitions:

Market Failure

A situation where the free market fails to allocate resources efficiently, leading to a net social welfare loss.

Private Goods

Goods that are excludable and rival in consumption, meaning their use is limited to paying customers and one person's use of the good prevents another's use of it.

Prices

The sum of money needed to buy a product or service.

Efficient Allocation

The optimal distribution of resources in an economy, where resources are utilized in a manner that maximizes societal welfare without any wastage.