Question

in 175 words Discuss when the requirements of the expense recognition principle are usually met. Give an example.

Answer 1

Answer :

1) Expense recognition principle states that the expense should be recognized only in the period in which revenue is generated which is related to that expense.

2) For example if a supplier purchases some goods at 100,000 and he sold for 1,80,000 in the next month. According to this principle, expense of 100,000 should be recognized only in the following month i.e., when he sold that goods.

3) It follows matching principle where it also states that, revenue and any expenses related to earning that revenue should be recognized together in the same reporting period.