Which of the following situations violates the matching principle during 2019 for a real estate company that pays its agents on commission?
A)Sales commissions are charged to expense in 2019 on all sales made in 2019 even though some of the commissions have not been paid.
B)Insurance expense is recognized for the total cost of a 1-year policy purchased in July 2019.
C)Wages expense is recognized in 2019 even though payday is not until sometime in 2020.
D)Sales commissions paid in 2019 for 2020 commissions are recorded as prepaid expenses for 2019.

Question

Quizplus · Accepted Answer

Option B violates the matching principle as it recognizes the entire insurance expense in 2019 even though the policy covers a period of one year that extends beyond the current accounting period. The matching principle requires that expenses should be recognized in the period in which the corresponding revenue is earned or in the period to which it relates. Since the policy covers the future period beyond 2019, the expense related to it should be recognized in future accounting periods when the related revenue is earned or used. Option A violates the accrual accounting principle as it recognizes an expense when revenue has not yet been earned or received. Option C and D do not violate the matching principle.

Which of the Following Situations Violates the Matching Principle During