Matching Principle and Accounting Period

A

The matching principle is a fundamental concept in accounting that requires companies to match revenues and expenses in the same accounting period. This principle helps to ensure that a company's financial statements accurately reflect its financial performance during a given period.

The correct answer to the question is A. Revenue and corresponding expenses should be recorded or matched in the same accounting period; failing to do so violates the matching principle of AAP.

When a company earns revenue, it should also record the expenses that are directly related to earning that revenue in the same accounting period. For example, if a company sells a product, it should record the cost of goods sold (COGS) in the same period as the revenue from the sale. This is because the cost of producing the product is directly related to the revenue earned from its sale.

Failing to follow the matching principle can distort a company's financial results and make it difficult for investors and other stakeholders to evaluate its financial performance accurately. For example, if a company records revenue in one period but delays recording the related expenses until a later period, it can make its current period's profits appear higher than they actually are, and its next period's profits appear lower. This can create a misleading picture of the company's financial health.

In conclusion, the matching principle of accounting requires companies to record or match revenue and corresponding expenses in the same accounting period. By doing so, companies can provide more accurate and reliable financial statements that help investors and other stakeholders make informed decisions.