Expense Recognition

Expense Recognition refers to the accounting principle that dictates the timing of when expenses are recorded in the financial statements. According to this principle, expenses should be recognized in the same period as the revenues they help to generate, following the matching concept.

For example, if a company incurs costs to produce goods in January but sells those goods in February, the expenses related to production should be recognized in February when the revenue from the sale is recorded. This ensures that the financial statements accurately reflect the company’s performance during that period, providing a clearer picture of profitability.