Question

Identify which basic principle of accounting is best described in each item below.

(a) Norfolk Southern Corporation reports revenue in its income statement when the performance obligation is satisfied instead of when the cash is collected.
(b) Yahoo! recognizes depreciation expense for a machine over the 2- year period during which that machine helps the company earn revenue.
(c) Oracle Corporation reports information about pending lawsuits in the notes to its financial statements.
(d) Gap, Inc. reports land on its balance sheet at the amount paid to acquire it, even though the estimated fair value is greater

Answer 1

The Matching Principle

Step-by-step explanation:

The Matching Principle of accounting holds that revenues should be matched with expenses. Hence the name.

This is to say, that revenues should only be recognized when the associated expenses with those revenues have been spent.

For example, in numeral a), we can see that Norfolk Southern Corporation recieved cash in advance, but it only recognized revenue once it had performed the services associated with that cash collection.