The matching principle or expense recognition principle forms a necessary part of the accrual basis of accounting, and ensures that expenses are matched to revenues recognized in an accounting period.
Tag: Income Statement
Barter Transaction Accounting
A business records an accounting entry for a barter transaction. The transaction involves the business exchanging goods in return for the provision of advertising services.
Advertising Expense and Prepaid Advertising
An advertising expense is normally treated as an operating expense in the income statement of a business. Prepaid advertising is treated as an asset and included in the balance sheet.
Branch Accounting System
Branch accounting is used by a business to assess the profitability of each of its branches. The simplest method is for the central head office to operate a single branch account for each branch. The method is sometimes referred to as the debtors system or direct method system.
Partnership Appropriation Account
The net income from the profit and loss account is transferred to the partnership appropriation account in order that it can be adjusted for partner salaries, commissions, and interest. Any residual net income after adjustment is distributed to the partners.
Departmental Accounting System
Departmental accounting is used by a business to assess the profitability of each of its departments using either the gross profit, contribution, or net profit method.
Manufacturing Account Format
The manufacturing account is a general ledger account used by a manufacturer to accumulate production costs such as direct materials, direct labor and manufacturing overheads. The account is used to calculate the manufacturing cost of goods completed during an accounting period.
Trading Profit and Loss Account
The trading and profit and loss accounts are temporary accounts in the general ledger. The trading account shows the gross profit and is particularly useful for a trading business which buys and sells finished products as it allows the gross profit and gross profit percentage to be calculated.
Purchase Allowance Journal Entry
A business receives a purchase allowance from a supplier in respect of faulty goods. The supplier issues a credit note for 1,500 and the amount is posted to the purchase allowance contra expense account.
Revenue Recognition Standard Accounting
A business expects to receive consideration for the sale of goods to its customers. Since accounting periods are for a defined time period a process is needed to allocate the correct amount of consideration to the correct period. This process is referred to as revenue recognition and is applied using a five step revenue model.
Goods Given as Charity Journal Entry
A business records an bookkeeping entry for goods given to charity. Since the goods are given free of charge they have no sales value and cannot be recorded as sales and therefore the cost of goods needs to be removed from the purchases account and transferred to a charitable expenses account.
Goods Distributed as Free Samples
A business records an accounting entry for free samples given to customers. Since the free promotional samples have no sales value they cannot be recorded as sales and therefore the cost of the samples needs to be removed from the purchases account and transferred to a promotional expenses account.