A furniture factory's employees work overtime to finish an order that is sold on February 28. The office sends a statement to the customer in early March and payment is received by mid-March. According to the expense recognition criteria the overtime wages should be expensed in
A) February.
B) March.
C) the period when the workers receive their cheques.
D) either in February or March depending on when the pay period ends.

Question

Quizplus · Accepted Answer

The overtime wages should be expensed in February because of the matching principle in accounting, which states that expenses should be recognized in the period in which they help to generate revenues. Since the overtime work was performed to complete an order sold in February, the related expenses should also be recognized in February, regardless of when the payment is made to the employees.

A Furniture Factory's Employees Work Overtime to Finish an Order