Bob’s father, Robert, started a small car wash company, Dr. Shine, 25 years ago.
ID: 2459179 • Letter: B
Question
Bob’s father, Robert, started a small car wash company, Dr. Shine, 25 years ago. After Bob finished school, he went to work for his father’s company. Three years ago, Bob and his father structured the company so that Bob and Robert each owned 50% of the business. Bob focused much of his time on the financial aspects of the company. Today, Bob reported to the board of directors about the financial health of Dr. Shine. The financial statements had not yet been issued for the end of the quarter, but Bob included all accounting events that had occurred after the close of the quarter anyway.
Bob is practicing the __________ Principle.
Is the answer: Matching???
Explanation / Answer
Matching principle is one of the GAAP principles that requires everty company to recognise income and expense of any period in the period to which relates. Further it requires to recognise all expense in the period in which the revenue has been recognised that was earned by incurring such expense. In the present case, Bob is violating the matching principle by recognising the events in the period to which they do not relate to. Ideally such events which occur after the end of quarter must be recognised in the next quarter.