Question

A concept is a group of related ideas. Matching could be considered a concept because it
includes ideas related to expense recognition. Briefly explain the ideas in expense recognition.
Use your own examples.

Answer 1

Expense recognition is combination of expense and matching. Expenses are outgoing of cash during accounting period for purchase of goods and services other than main product. It is recognized when incurred along with revenue.

The expense recognition principle provides that expenses are matched in 3 ways as :

a. If the association with revenue exists, expenses are matched with revenue in the same period. For example, Freight outward. Whenever sales are made, these are recognized.

b. If no association exists, expenses are matched on proportionate basis or some other rational way. For example, discount provided on terms. There are various conditions which can lead to discount allowed to be recorded on proportionate sales inclusive of sales returns.

c. If no association is evident and no further benefits expected, expenses need to recognized immediately. For example : Office rent. There is no association with sales. Hence, it is recorded immediately.

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