CFA Practice Question

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CFA Practice Question

Which of the following represents a use of the matching principle in accounting?

I. The cost of purchasing a good on account is recorded when the account payable is paid.
II. Revenues from a sale on account are recorded when the payment on the account receivable is received.
III. The costs of producing inventory are recognized along with the revenues from the sale when the sale is made.
Correct Answer: III only

User Contributed Comments 5

User Comment
dnoyelles any reason why it's only 3? i would think it's none...
godz I is incorrect because expense is not recognized when it is incurred....II is incorrect because it relates to the revenue recognition principle not the matching principle
gill15 I was going for NONE as well. Dont understand why III is correct. Revenues dont have to be recognized when Sales are made but when it's earned and realizable (Unearned Revenue Eg with magazines). In that context E would be recognized whenever R is recognized which is in the future.

I guess this is a specific case though. You sold inventory, received cash on the sale, therefor cost of producing inventory(the expense) is recognized at this point.
assiduous Don't make this overly complicated. Remember expenses are incurred to generate revenues (this is the essence of the matching principle). In this case, we spent money to produce inventory and sold the same inventory to generate revenue. #1 cites an expense but no revenue and #2 cites revenue but no expense. Hope this helps.
leon121 @assiduous --- excellent commentary
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