What does the matching principle entail?

The matching principle is a fundamental accounting concept that dictates that expenses must be recorded in the same accounting period as the revenues they are associated with. This means that when a company earns revenue from a product or service, it should also recognize the expenses that were incurred to generate that revenue in the same period. This approach ensures that financial statements present an accurate portrayal of a company's profitability during that period.

By matching expenses to the revenues they help to generate, the principle aims to align the income and expenses, providing a clearer picture of financial performance. This method helps stakeholders understand how effectively a company is using its resources to generate income, ultimately facilitating better decision-making based on accurate financial data.

Other options do not accurately reflect the essence of the matching principle. Recording expenses before revenues or stating that revenues should only be recognized once cash is received would disrupt this alignment, leading to misleading financial statements. Similarly, recording assets solely at their purchase price does not relate to the revenue and expense matching that the principle emphasizes.