The matching principle in GAAP requires that we separate:
A)Conversion costs and overhead.
B)Product costs and period costs.
C)Selling and administrative costs.
D)Controllable and non-controllable costs.
E)None of the above.

Question

Quizplus · Accepted Answer

The matching principle requires that we match the expenses to the revenues that they helped generate. Product costs (such as direct materials, direct labor, and manufacturing overhead) are the expenses that can be directly traced to the products produced or sold, while period costs (such as selling, general, and administrative expenses) are the expenses that are not directly tied to a specific product or period of time. Therefore, separating product costs and period costs helps to properly match the expenses to the revenues.

The Matching Principle in GAAP Requires That We Separate