Florida General Contractor Practice Exam

Which accounting principle ensures that all expenses are matched with revenues?

1. Revenue Recognition Principle

2. Matching Principle

3. Cost Principle

4. Full Disclosure Principle

The correct answer is: Matching Principle

The matching principle is a fundamental concept in accounting that mandates expenses be recorded in the same period as the revenues they help generate. This principle ensures that a company's financial statements present a more accurate assessment of its financial performance over a given time frame. By aligning expenses with the corresponding revenues, this principle provides stakeholders with a clearer picture of profitability and allows for better analysis of a company's operational efficiency. In practice, this means that if a company incurs costs associated with generating a specific revenue stream (such as direct labor or materials), those expenses are reflected on the income statement within the same accounting period when the revenue from those sales is recorded. This approach avoids the distortion of financial results caused by mismatched reporting of revenues and expenses, thereby adhering to the accrual basis of accounting, which is essential for meaningful financial analysis.