Question

Which of the following is a TRUE statement regarding expenses?

1) Expenses will never result in the creation of a liability account.
2) Expenses represent future benefit to the company.
3) The expense recognition principle recognizes expenses in the same period in which the related revenues are earned.
4) The critical event for recording salary expense is the payment of cash.

Answer 1

The true statement about expenses is that the expense recognition principle recognizes expenses in the same period as the related revenues. This follows the matching principle of accounting, which is fundamental in linking expenses with revenues they help to generate. So the correct answer is option 3.

Step-by-step explanation:

The student's question relates to the characteristics of expenses within accounting. Out of the given options, the correct statement regarding expenses is that: the expense recognition principle recognizes expenses in the same period in which the related revenues are earned.

This principle is often referred to as the matching principle, which dictates that expenses should be recognized when they are incurred, regardless of when the payment is made, as long as they are tied to the revenues they helped generate. Contrary to the first option, expenses can create liabilities, such as accounts payable.

Expenses, as indicated by the second option, generally represent past benefits, not future ones. The fourth option incorrectly suggests that cash payment is the trigger for expense recognition, while in accrual accounting, the commitment (incurred event) is.