Expense Recognition Principle

The Expense Recognition Principle states that expenses should be recorded in the accounting period when they are incurred to generate revenue, not necessarily when they are paid. This means businesses match expenses with the revenues they help produce, ensuring financial statements accurately reflect profitability during a specific time frame. For example, if a company provides a service in March and pays for advertising in April, the advertising expense should be recorded in March. This principle helps create a clear and consistent picture of a company's financial performance by aligning costs with the related income.