Glossary entry (derived from question below)
English term or phrase:
Paid or Incurred?
English answer:
paid or incurred (i.e. paid and unpaid) = matching principle
Added to glossary by
jarry (X)
Jun 11, 2006 08:33
17 yrs ago
1 viewer *
English term
anastasia t (X)
Paid or Incurred?
English
Bus/Financial
Accounting
maintenance and repair expenditures are recognised as expenditures for the year in which they are ***(paid or incurred?).
Responses
| 4 +2 | paid or incurred (i.e. paid and unpaid) = matching principle |
jarry (X)
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| 4 +1 | Incurred |
Fan Gao
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| 5 | Debts are incurred, expenditures are paid |
zaphod
|
| 4 | incurred |
David Moore (X)
|
Responses
+2
8 mins
Selected
paid or incurred (i.e. paid and unpaid) = matching principle
The matching principle in accounting implies that expenses (whether paid or incurred, i.e. both paid and unpaid) are allocated to the financial year to which they relate.
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Note added at 16 mins (2006-06-11 08:49:57 GMT)
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http://www.bookkeeperlist.com/gaap.shtml#Matching
The Matching Principle
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. If this is not done, the financial statements will not measure the results of operations fairly.
In relation to your question this means in plain English that a business would have to recognise both its expenses paid and incurred if that business recognised in the same financial year the revenue they helped to earn.
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Note added at 16 mins (2006-06-11 08:49:57 GMT)
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http://www.bookkeeperlist.com/gaap.shtml#Matching
The Matching Principle
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. If this is not done, the financial statements will not measure the results of operations fairly.
In relation to your question this means in plain English that a business would have to recognise both its expenses paid and incurred if that business recognised in the same financial year the revenue they helped to earn.
Peer comment(s):
| agree |
MikeGarcia
33 mins
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Thank you
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| agree |
Asghar Bhatti
: very correct.
1 hr
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Thank you
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4 KudoZ points awarded for this answer.
Comment: "Thank you everybody. Our colleagues in the Chi to Eng forum translate it as "maintenance and repair expenditures are recognised as ***current year*** expenditures ". But i guess the matching principle does capture the essence of the issue."
+1
7 mins
Incurred
Hi Anastasia,
My instinct would be to say "incurred" because expenditures are costs and people incur costs throughout the year for whatever reason which they can then write off as expenses for tax purposes.
Mark
My instinct would be to say "incurred" because expenditures are costs and people incur costs throughout the year for whatever reason which they can then write off as expenses for tax purposes.
Mark
Peer comment(s):
| agree |
trautlady
11 mins
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| agree |
David Knowles
: definitely. You can also say "in which they arise"
12 mins
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| disagree |
jarry (X)
: There is no question of choice here. We are dealing with a fundamental accounting principle. Both expenses paid or incurred must be recognised in a financial year if the income they helped produce is also recognised in that year.
43 mins
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9 mins
incurred
in normal year-end accounts; a reserve is usually made to cover these outstandings. However, I suspect it may depend on the actual TYPE of accounts being drafted, so wait for further advice, more accounts-oriented than mine... (or some peer agreement for this answer!).
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Note added at 12 mins (2006-06-11 08:45:57 GMT)
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The principle depends on whether the amounts are incurred in year zero, and paid in year zero plus 1...which would happen in my example above. Lots of accounts obviously would be both incurred and paid in the same year, wouldn't they?
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Note added at 12 mins (2006-06-11 08:45:57 GMT)
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The principle depends on whether the amounts are incurred in year zero, and paid in year zero plus 1...which would happen in my example above. Lots of accounts obviously would be both incurred and paid in the same year, wouldn't they?
2 hrs
Debts are incurred, expenditures are paid
As the subject of the sentence is expenditures, the correct word is PAID. Had the sentence refered to the debts the expenditures represented, incurred would be correct. You can't write off a en expense unless you spend it.
Discussion