Which concept requires expenses to be matched with revenues in the period they are incurred?

• A. The Cash Matching Policy
• B. The Revenue Principle
• C. The Matching Concept
• D. The Expenditure Allocation Rule

Answer: (C)

The idea being tested is that in accrual accounting, expenses are recognized in the same period as the revenues they help generate. This alignment of costs with the revenues they produce gives an accurate picture of profitability for that period. That’s why the Matching Concept is the best descriptor: it requires expenses to be allocated to the periods in which related revenues are earned, using methods like depreciation, amortization, or accruals to ensure costs support the same time frame as income.

The other notions don’t capture this timing of expense recognition. A Cash Matching Policy would tie expenses to when cash leaves the company, which can distort profit if cash timing differs from when revenue is earned. The Revenue Recognition Principle focuses on when revenue is recognized, not how expenses are paired with the corresponding revenues. An Expenditure Allocation Rule isn’t a standard framework for timing costs with revenues and lacks the clear intent of matching expenses to the associated revenue.