Thread: Help with matching principle

Hi,

I am currently studying first year Uni accounting and am busy with the assignment. There are some tough questions here considering I've never done accounting and have studied and being working in IT for the past 5 years.

There is one question in particular that has caused much debate amongst students as I feel some of us have not grasped the concept of the matching principle.

The question goes like this:

During March 20.2 James Dealers purchased goods to the value of $3 000,
one third of which was sold for $1 200 during March. Rental and electricity for the
month amounted to $200 and $30 respectively.

Which one of the following amounts represents the total costs to be taken into
account against income according to the matching principle for March 20.2?

1 $3 230
2 $1 000
3 $1 230
4 $1 200
5 None of the above


I think it is number 2) $1000. I get to this conclusion because he has lost $1000 in stock. What I gather from the matching principle is rent and electricity are not directly effecting expense to match income. Many students have said they feel it is answer 3 or 4.

I would really appreciate it if someone could help explain this one.

Thank you in advance.

absolutely agree with the above. Your not matching dollar amounts, your matching revenues with expenses. That doesnt mean the expenses cant exceed the revenue. In that particular month it cost the company 1230 dollars to generate 1200 dollars worth of sales. The breakout being 1000 COGS, 230 to the G&A expenses.