Under GAAP, revenue and the corresponding expenses should be recorded in the same accounting period.

• A. True
• B. False
• C. Not sure
• D. Not applicable

Answer: (A)

Under GAAP the matching principle applies: in accrual accounting, revenue is recognized when earned and the expenses that helped generate that revenue are recognized in the same period. This keeps the income statement reflecting the period’s profitability, regardless of when cash actually changes hands. For example, if you make a sale in a given period, the related cost of goods sold should be recorded in that same period, even if you pay suppliers in a later period. Depreciation of assets used to generate revenue is also allocated across the periods those assets help produce revenue. Adjusting entries handle any prepaid or accrued items to keep revenue and related expenses aligned. So, revenue and the corresponding expenses should be recorded in the same accounting period.