What type of expenses should be properly matched with revenues according to accounting principles?

The principle of matching expenses with revenues is a fundamental concept in accrual accounting. It states that costs should be recognized in the same period as the revenues they help to generate. This is why expenses incurred to earn specific item revenues are the type of expenses that should be properly matched with those revenues.

When a company sells a product or service, the costs directly associated with producing or delivering that product or service—such as the cost of goods sold, direct labor, and other variable costs—are recognized in the same accounting period as the sales revenue from that product or service. This matching provides a more accurate picture of a company’s profitability for a given period by ensuring that the costs incurred to generate revenue are accounted for simultaneously with the income from that revenue.

On the other hand, expenses related to past performance are not necessarily linked to current revenue generation; they may pertain to prior accounting periods and do not fulfill the matching principle. Expenses that do not influence future cash flows do not meet the criteria for relevance and therefore might not provide useful information for matching with revenues. Lastly, while all operational costs incurred during the year are critical to understanding overall financial performance, they are not all directly tied to the revenues generated during that same period in the way that specific item