Hi everyone,
Sorry for the not so interesting question, but i’m not a native english speaker so sometimes i get confused with some wordings.
I don’t quite get why an expense would be linked to Revenue, to me revenue is necessarly positive and is related to cash generated by the companies main activity. Accrual accounting means that at the instant where we bill the client, and where we’re both (company and the client) are engaged, then we account the revenue, even if the cash is not paid yet.
So i don’t really get why Answer B is incorrect and Answer C is correct.
Thanks guys.
The question is somewhat misleading.
It’s true that revenues are supposed to be recognized in the same period as their associated expenses. What’s misleading is that the question makes it sound as though the expenses are given and the decision is when to recognize the revenue. In fact, it’s generally the revenue that’s given and the decision is when to recognize the expenses. It’s known as the matching principle, and it’s the reason that we capitalize assets and expense them over long periods (through depreciation, amortization, depletion, or accretion) rather than expensing them when they occur.
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I see. Thanks a lot S2000.
