Revenue recognition principle requires companies to record transactions on an accrual basis, that is when revenue is (1) realized or realizable and (2) earned, not when cash is received.
Matching principle. Expenses have to be matched with revenues as long as it is reasonable to do so. Expenses are recognized not when the work is performed, or when a product is produced, but when the work or the product actually makes its contribution to revenue. This principle allows greater evaluation of actual profitability and performance. Depreciation and Cost of Goods Sold are good examples of application of this principle. Costs with no connection with revenue are generally charged as expenses to the current period. e.g. office salaries and other administrative expenses.
Historical cost principle requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities. This principle provides information that is reliable (removing opportunity to provide subjective and potentially biased market values), but not very relevant. Thus there is a trend to use fair values. Most debts and securities are now reported at market values.
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