Posted: July 7th, 2016

Why should you consider this argument with caution?

Case 5-7: Matching Concept

The accounting profession has employed the matching concept to determine what to report in the income statement and to determine how to measure items reported in the income statement and to determine how to measure items reported in the income statement. This concept implies that expenses should be measured directly, and thus balance sheet measure are residuals. The matching concept is therefore an income statement approach to the measurement and reporting of revenues and expenses.

In an executive manager’s meeting, a company’s chief financial officer reported that the year-to-date net income on the company’s income statement was $1.2 million. The chief financial officer then said, “Based on this figure, we finally have the funds we need to begin our much needed building expansion.”

Why should you consider this argument with caution? Explain.