Matching Principle

C

Performance can be measured only if the related revenues and cost are accounted for in the same period.

The matching principle is an accounting concept that requires companies to match revenues earned with the expenses incurred in generating those revenues. In other words, it ensures that expenses are recognized in the same period as the related revenues. This principle helps in providing a more accurate representation of a company's financial performance for a given period.

Among the given options, the correct answer is C. revenues earned and expenses incurred in generating those revenues should be reported in the same income statement. This means that when a company recognizes revenue for a particular period, it should also record the expenses directly associated with generating that revenue in the same period.

Option A, non-operating gains and losses should be netted against each other, is not related to the matching principle. Non-operating gains and losses are typically reported separately from the operating activities of a company and are not directly related to the matching of revenues and expenses.

Option B, a proportion of each dollar collected will be assumed to be a recovery of cost, does not accurately describe the matching principle. The matching principle focuses on matching expenses with the corresponding revenues, rather than assuming that each dollar collected represents a recovery of cost.

Option D, assets will be matched to the liabilities incurred to purchase them, is not related to the matching principle. This statement refers to the concept of matching assets and liabilities, which is not the same as matching revenues and expenses.

In summary, the matching principle requires that revenues earned and expenses incurred in generating those revenues should be reported in the same income statement. This principle ensures that the financial statements reflect the proper matching of revenues and expenses, leading to a more accurate representation of a company's financial performance.