Canadian GAAP?

Question

I just need to understand the difference between these two GAAP principles in accounting.

Whats the difference between te revenue recognition convention and the matching principle?

Thanks!

Answer 1

These two principles are not unique to Canadian GAAP. They are universal.

The revenue recognition convention provides that revenue be recognized at the time the transaction is completed. Usually, this just means recording revenue when the bill for it is sent to the customer and the good/service has been delivered. If it is a cash transaction, the revenue is recorded when the sale is completed and the cash received. For large projects, then it gets fancier. You get into other metrics like "percentage of completion" to recognize revenues as you go along instead of in one lump sum.

The matching principle is an extension of the revenue recognition convention. The matching principle states that each expense item related to revenue earned must be recorded in the same accounting period as the revenue it helped to earn. The idea is that you record the expenses it took to generate those revenues.