The matching principle is a fundamental accounting concept that ensures that expenses are recorded in the same period as the revenues they help generate.
Why Option C (Expense recognition is tied to revenue recognition) is Correct:
The matching principle states that expenses should be recognized in the same period as the revenue they help generate to ensure accurate financial reporting.
This principle is applied in accrual accounting under GAAP and IFRS, ensuring that expenses and revenues are properly aligned.
Why Other Options Are Incorrect:
Option A (Revenues should be recognized when earned):
This describes the revenue recognition principle, not the matching principle.
Option B (Revenue recognition is matched with cash):
Incorrect because the matching principle applies to accrual accounting, not cash accounting. Revenue can be recognized before cash is received.
Option D (Expenses are recognized at each accounting period):
Incorrect because expenses are not necessarily recognized in every period; they are matched to revenue.
IIA Practice Guide – "Auditing Financial Reporting Controls": Discusses the importance of the matching principle.
GAAP & IFRS Accounting Standards: Define and require the application of the matching principle.
COSO Internal Control Framework: Emphasizes revenue-expense alignment for accurate financial reporting.
IIA References:
