Question

In a recent annual report, Apple Computer reported the following in one of its disclosure notes: "Warranty Expense: The Company provides currently for the estimated cost for product warranties at the time the related revenue is recognized." This note exemplifies Apple's use of:________
a. Conservatism
b. Matching
c. Realization principle
d. Economic entity

Answer 1

Answer: b. Matching

Explanation: The matching principle as an accounting practice states that all expenses must be matched in the same accounting period as the revenues they helped to earn. It recognizes revenues and related expenses of firms in the same accounting period. The matching principle helps in the avoidance of misstated earnings for a period.

Therefore the warranty expense note exemplifies Apple's use of the matching principle.