Nettleton Technologies has a December 31 year-end. They provided services worth $40,000 in December and were paid $10,000 in cash at that time with the rest paid in January. The employees who performed the services were paid $25,000 for their work in January. Under the matching concept how much net income would be reported in December?

Question

Quizplus · Accepted Answer

The matching concept requires expenses to be matched with the revenues they help to generate. In December, Nettleton Technologies earned $40,000 in revenue, regardless of when they were paid. The expense of $25,000 for employee wages, although paid in January, relates to the work done in December to earn the December revenue and should be matched with December's revenue. Thus, the net income for December is revenue ($40,000) minus expenses ($25,000), which equals $15,000.

Nettleton Technologies Has a December 31 Year-End