Discuss how the deferral of prepaid expenses, unearned revenues and depreciation support the matching principle.
Simply put; the deferral of prepaid expenses and unearned revenues ensures that expenses are properly matched with revenue, and revenues are properly matched with expenses. [
Where depreciation is concerned; the proper allocation of the cost of the asset over the period of time that the asset provides value for the company again ensures that expenses are properly matched with the revenue the
asset helps generate.
Yes, the added work required by accrual accounting does add value to the financial statements. It ensures that statements for different periods are prepared using comparable methods, so changes in financial condition can be easily determined. In addition, it helps to ensure that other similar companies can also be compared to determine how one is doing in comparison to another. This is useful when comparing different companies prior to investing in one, or more, of them. ]
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