The matching concept requires expenses to be recognised in which period?

• A. A In the period cash is paid
• B. B In the period revenue is earned
• C. C In the period when the invoice is received
• D. D In the period of budget approval

Answer: (B)

The matching concept ties expenses to the period in which the related revenue is earned, reflecting accrual accounting. This means to recognise an expense in the same period that the revenue it helps generate is earned, not when cash is paid or when an invoice arrives. For example, if you provide a service in December and pay the supplier in January, the expense should be recognised in December because the revenue was earned then. Recording the expense only when cash is paid would distort profit, and timing based on invoice receipt or budget approval doesn’t align with when benefits are consumed. So, recognising expenses in the period revenue is earned best reflects true performance.