General principles of expense recognition

If financial statements were prepared on a cash basis, the firm

  • Recognize cash received as revenue 
  • Recognize cash payments as expense 

Under the accrual method of accounting (22)

  • Expense recognition is based on matching principle (23)
    • Expense to generate revenue are recognized in the same period as the revenue 
  • Period costs: 
    • Administrative cost…: are expensed in the period incurred