Business Q&A

Accounting

Answers:
"Matching expenses beside revenues" applies to corporations which derive more than one type of revenue. The concept is to develop an accounting system that will game respectively revenue stream beside its associated expenses, so that the company can determine the profit margins from respectively type.

For example, suppose that a businesswoman make computer monitors, including the outmoded CRT and the unmarked LCD types. It is a bit comfortable for the company to track its revenue from CRT and LCD sale, but the company will also want to track the expenses of respectively by fitting CRT revenue beside CRT expenses, and by harmonizing LCD revenue beside LCD expenses. This type of accounting is call "cost accounting" and is more difficult — have an idea that of how difficult it would be to figure the expenses if the assemblers worked on both CRT and LCD assembly every morning.

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This accounting principle requires companies to use the accrual foundation of accounting. The go well together principle requires that expenses be matched next to revenues. For example, sale commissions expense should be reported within the term when the sale be made (and not reported surrounded by the term when the commissions be paid). Wages to workforce are reported as an expense within the week when the workforce worked and not within the week when the organization are salaried. If a company agrees to confer its workers 1% of its 2006 revenues as a bonus on January 15, 2007, the company should report the bonus as an expense within 2006 and the amount unpaid at December 31, 2006 as a liability. (The expense is occurring as the sale are occurring.)

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