Question

1. A restaurant that records all purchases of food and beverages as an expense at the time of purchase and does not consider the end of period inventories would be violating the: . . (Hint: if the restaurant did not account for the change in inventory what happens to the computation of cost of goods sold? If Cost of Goods Sold is computed incorrectly, what happens to current period profit?)
a.Cost principle
b.Materiality concept
c.Full disclosure principle
d.Matching principle

2. Accrual accounting is based on the principle of matching sales revenue with expenses.
True/False

Answer 1

Part#1

Option #d Matching Principle Should be chosen.

According to matching principle ,The expenses should be match with revenue of accounting period so that income statement could show the real and fair income for financial period.

In given question , restaurant record all purchases cost as expenses(Cost of Good sold) no matter the purchase item are sold or not that violating the matching principle of accounting because it could be the some purchases ramained unsold and that should be recorded as ending inventory to determined correct cost of good sold that belongs to concerned Revenue for accounting period.

Corrected Cost of Good sold =beginning inventory + Purchases - ending inventory

but restaurant record cost of good sold(expenses) = Purchase that is wrong and violated the Matching principle.

Part#2

True . Accrued account followed matching principle of accounting. Under this principle income and expenses should be recorded on basis of earned and incurred respectively not on base of cash received and paid respectively in accounting period which these are related.