Question

Ch.10

10) American Paging Inc., is the seventh largest paging company in the united states. In a recent balance sheet, it reported a current liability of $8,452, 379 that was labeled unearned revenues and deposits. A note to the financial statements explained:

unearned revenues and deposits primarily represent monthly charges to customers for radio paging rental and dispatch billed in advance. Such revenues and deposits are recognized in the following month when service is provided or are applied against the customer's final bill or last month's rent.

What basic principle of accounting guides American Paging's handling of its unearned revenues and deposits?

Answer 1

Matching concept is the basic principle of accounting that guides American paging's handling of its unearned revenue and deposits.

It means:

- Firms report incoming revenues in the period they earn them.

- They match revenue by reporting in the same period the expenses they incur to earn them.

It contributes to accuracy in reporting profits.