Table of Contents
What does revenue and expenses mean?
Revenues and Expenses Rather, revenue is the term used to describe income earned through the provision of a business’ primary goods or services, while expense is the term for a cost incurred in the process of producing or offering a primary business operation.
What does it mean to match revenues and expenses?
Matching principle
Matching principle is the accounting principle that requires that the expenses incurred during a period be recorded in the same period in which the related revenues are earned. This principle recognizes that businesses must incur expenses to earn revenues.
What is expense revenue?
Revenue expenditures are short-term expenses used in the current period or typically within one year. Revenue expenditures include the expenses required to meet the ongoing operational costs of running a business, and thus are essentially the same as operating expenses (OPEX).
What are examples of revenues and expenses?
All of the following are examples of revenue expenditures:
- Routine repair/update costs on equipment.
- Smaller-scale software initiative or subscription.
- Cost of goods sold.
- Rent on a property.
- Salaries and wages.
- Insurance.
- Advertising.
What is a going concern concept?
Key Takeaways. Going concern is an accounting term for a company that is financially stable enough to meet its obligations and continue its business for the foreseeable future. Certain expenses and assets may be deferred in financial reports if a company is assumed to be a going concern.
When to use the matching revenue and expenses principle?
In other words, revenues of the relevant accounting period should be matched against the expenses of the same period to ascertain profits or losses made by the business. Again it should be noted that this year’s expenses are associated with this year’s revenue.
What is the revenue recognition principle in accounting?
The revenue recognition principle is an accounting principle that requires the revenue be recognized and recorded when it is realized and earned, regardless of when the payment is made. In other words, businesses don’t have to wait to receive cash from customers to record the revenue from sales.
How are expenses related to this year’s revenue?
Again it should be noted that this year’s expenses are associated with this year’s revenue. We do not compare this year’s expenses with last year’s revenue because there is no close relationship between the two.
When is the matching expense reported on the income statement?
The matching statement requires that the commission expense is reported in the December income statement. If the company uses the cash basis of accounting, the commission would be reported in January (in the month they were paid) rather than December (the month they were incurred).