Revenue recognition principle & Expense recognition principle/Matching principle

Q. Necessity of revenue recognition principle & Expense recognition principle/Matching principle.
Revenue recognition principle: The revenue recognition principle requires that companies recognize revenue in the accounting period in which it is earned. In a service enterprise, revenue is considered to be earned at the time the service is performed. To illustrate, assume that Dave’s Dry Cleaning cleans clothing on June 30 but customers do not claim and pay for their clothes until the first week of July. Under the revenue recognition principle, Dave’s earns revenue in June when it performed the service, rather than in July when it received the cash. At June 30, Dave’s would report a receivable on its balance sheet and revenue in its income statement for the service performed.

Matching/Expense recognition principle: Accountants follow a simple rule in recognizing expenses: “Let the expenses follow the revenues.” Thus, expense recognition is tied to revenue recognition. In the dry cleaning example, this means that Dave’s should report the salary expense incurred in performing the June 30 cleaning service in the same period in which it recognizes the service revenue. The critical issue in expense recognition is when the expense makes its contribution to revenue. This may or may not be the same period in which the expense is paid. If Dave’s does not pay the salary incurred on June 30 until July, it would report salaries payable on its June 30 balance sheet. This practice of expense recognition is referred to as the expense recognition principle often referred to as the matching principle. It dictates that efforts (expenses) be matched with results (revenues).