State the matching principle and provide a basic example.

• A. Revenues and the expenses incurred to generate them are recognized in the same period; example: depreciation expense tied to the period benefiting from a fixed asset.
• B. Revenues are recognized when cash is received; expenses when cash is paid.
• C. Only expenses are recognized in the period; revenues are ignored.
• D. Gains and losses are recognized when realized, not matching.

Answer: (A)

The matching principle requires recording expenses in the same period as the revenues they help generate. This keeps income measurement aligned with the economic resources used to earn those revenues, giving a clearer picture of performance for that period. Depreciation is a classic example: the cost of a fixed asset is allocated over the periods it benefits, so each period shows a portion of the asset’s cost as an expense that relates to the revenues produced during that period.

Why this fits best: it embodies the idea that costs should be tied to the revenues they enable, not just when cash changes hands or when an event occurs, ensuring accurate net income for each period.

The other statements don’t fit the idea of matching. Recognizing revenue only when cash is received is cash basis, not matching; it ignores the period in which the asset or service is used. Saying only expenses are recognized while revenues are ignored misstates how income is measured. And recognizing gains and losses only when realized, without considering their relation to the periods’ revenues, fails to align earnings with underlying activities.