Matching Principle for Expense Recognition

Steps:

• Identify unpaid loan interest as an expense incurred in the current period but not yet paid.
• Recall that financial statements must reflect all expenses related to the period's activities.
• Apply the matching principle, which requires accruing such expenses to align with the revenues they support.
• Eliminate other concepts, as they do not address timing of expense recognition.

Why C is correct:

• The matching concept mandates recognizing expenses in the same accounting period as the revenues they help generate, so unpaid interest is accrued to match the loan's benefit period.

Why the others are wrong:

• A. Consistency ensures uniform accounting methods across periods, unrelated to accruing unpaid interest.
• B. Going concern assumes the business will continue operating, not specifying interest inclusion.
• D. Money measurement records only quantifiable monetary items, but does not dictate when to include unpaid interest.

Final answer: C