Principles of

Expense &
Revenue
Recognition
By: Group 3 ( Frejill & Elvin )
Expense Recognition-The Matching
Principle
The Matching Principle
~ states that all costs that were incurred to
generate the revenue appearing on a given
periods income statement should appear as
an expense on the same income statement



~ Expenses should match against the
revenues. Revenues are first recognized and
expenses are then matched with those
revenues.
At the end of an accounting period,
adjusting entries are needed so that all
revenues earned is reflected in the
accounts regardless of whether it has
been collected.

Adjusting entries are also needed for
expenses to assure that all expenses
incurred are matched against the
revenue of the current period, regardless
of when cash payment of the expense
occurs.
Accrued Expense ~ Expense is recognized before
cash is paid out.

There are 2 types of balancing account
when cash is paid out at the same time as
expenses are recognized:
Deferred Expense ~ Expense is recognized
after cash is paid out.

The generally accepted accounting
principle that determines when revenue
should be recorded in the accounting
records.

Revenue is realized when services are
rendered to customers or when goods are
delivered to customers.

Revenue Recognition-The Realization
Principle
Accrued Revenue - for revenues earned
but not yet recorded or received in cash.
Deferred Revenue for revenues
received in cash but recorded as liabilities
before they are earned.

The Realization Principle and The Matching
Principle are key elements of accrual
accounting.