Question

Susan Zupan, a lawyer, accepts a legal engagement in March, performs the work in April, and is paid in May. In completing the engagement, Zupan pays no costs in March, $2,000 in April, and $2,500 in May (incurred in April). How much expense should the firm deduct from revenues in the month when it recognizes the revenue?

Answer 1

Expenses of $4,500 should be deducted from the revenues in April. Under the expense recognition principle efforts (expenses) should be matched with accomplishments (revenues).