The purchase of inventory on credit and corresponding accounts payable increase in AQG Industries' scenario represents the Matching Principle in accounting, which aligns expenses with the revenue they generate.
The scenario where AQG Industries records the purchase of $20,000 of product as an increase in inventory and an increase in accounts payable represents the Matching Principle. This principle states that expenses should be recorded in the period when the revenues that are generated as a result of those expenses are recorded. In this case, AQG is assuming they will realize the value from the inventory in future sales and will settle the obligation to RSI Manufacturing eventually. Thus, the economic activities are matched with the financial reporting period.
In the scenario for calculating accounting profit, if a firm had sales revenue of $1 million and expenses totaled $950,000 (labor, capital, and materials), the accounting profit would be $50,000 ($1 million in revenue minus $950,000 in combined expenses).