Business Degree Certification Practice Test

Which principle aligns expenses with revenues in accounting?

1. Customers with businesses

2. Expenses with revenues

3. Assets with liabilities

4. Creditor relationships

The correct answer is: Expenses with revenues

The principle that aligns expenses with revenues in accounting is known as the matching principle. This principle ensures that expenses incurred during a period are recognized in the same period as the revenues they helped generate. This correlation is essential for accurately assessing a company's profitability and financial performance, as it prevents mismatched timing of revenue and expense recognition. By following the matching principle, businesses can provide a clearer picture of profitability within a specific timeframe, as it acknowledges that a company's costs of doing business should directly reflect the income generated from those efforts. This approach enhances transparency and allows stakeholders to make more informed decisions based on an accurate depiction of financial health. The other options do not specifically address the relationship between expenses and revenues, making it clear that they are not aligned with the fundamental principles of accounting that govern income statement preparation.