Expense Recognition

Expense recognition is the accounting principle that dictates when a business should record its expenses. According to this principle, expenses are recognized in the same period as the revenues they help to generate, aligning costs with the related income. This means if a company incurs costs to produce a product that it sells, those costs are recorded as expenses in the same timeframe as the sales revenue. This practice ensures that financial statements accurately reflect a company’s performance and profitability during a specific period, providing a clearer picture of its financial health.