ECONOMICS

Detailed explanation-1: -Accrual accounting is an accounting method where revenue or expenses are recorded when a transaction occurs vs. when payment is received or made. The method follows the matching principle, which says that revenues and expenses should be recognized in the same period.

Detailed explanation-2: -The matching principle is part of the Generally Accepted Accounting Principles (GAAP), based on the cause-and-effect relationship between spending and earning. It requires that any business expenses incurred must be recorded in the same period as related revenues.

Detailed explanation-3: -Example of Matching Principle For example, if a business pays a 10% commission to sales representatives at the end of each month. If the company has $50, 000 in sales in the month of December, the company will pay the commission of $5, 000 next January. Some businesses follow the matching principle.

Detailed explanation-4: -Accrual-Basis Accounting Revenues are recognized when services performed, even if cash was not received. Expenses are recognized when incurred, even if cash was not paid.

Detailed explanation-5: -What is the Time Period Principle? The time period principle is the concept that a business should report the financial results of its activities over a standard time period, which is usually monthly, quarterly, or annually.